CPA responds to the latest ONS Construction Output Data

In response to the latest ONS Construction Output Data, which has been published today [9 October], Noble Francis, economics director at the Construction Products Association, said: “Construction output growth slowed sharply in August 2020, rising by only 3.0%, following on from July’s 17.2% growth. However, this still represents further recovery, and according to most firms in the industry, this is likely to only be a short-term blip due to holidays and poor weather affecting on-site activity. It’s important to note that activity varied considerably across the key sectors.”

“Private housebuilding is the largest construction sector and output in August 2020 rose by 12.0% compared with July but remained 10.4% lower than a year earlier. Housebuilders remain buoyed by pent-up demand feeding through, rising house prices and strong forward sales. Government has also clearly signalled that it will sustain demand through the Stamp Duty holiday and the completions deadline extension for the current version of Help to Buy.

Noble continued: “Commercial output in August was 2.0% lower than in July and remained 22.0% lower than one year earlier. Activity is continuing to finish off offices, retail and leisure projects that were started pre-COVID-19. Interestingly, almost one-third (31%) of commercial construction is in London alone where construction work involves many trades in tight spaces, so social distancing and other safety measures are still hindering productivity on-site.

“As a result of this, commercial towers in London that were anticipated to finish in the summer (pre-COVID-19) are now likely to finish in 2020 Q4 or 2021 Q1. Along with this hindrance to productivity, there remains the question of where demand and contracts for new offices, retail and leisure will come from given increased working from home and the risky, high upfront nature of investment required for commercial builds, which has a long-term rate of return.”

Noble concluded: “Infrastructure output in August 2020 was 2.7% higher than in July and 1.3% higher than a year earlier. Infrastructure has a strong pipeline of projects and programmes across roads, rail, water, and energy. With certainty of funding from clients, both public and regulated sector clients are keen to get on with activity. Social distancing and other safety measures are often easier to enact on large infrastructure sites as well, so prospects remain bright across the sector.

“Overall, total construction output continues to grow, but it is increasingly becoming reliant on government either directly through spending in infrastructure or indirectly through policy stimulus to boost housing. This places an extra responsibility on government to ensure it comes through with activity on the ground and not just announcements if we are to see construction recovery continue and not stall in the next 12 months.”