Fall in construction output but new orders point to growth

ONS_logoThe latest figures from the Office for National Statistics (ONS) have revealed that construction output fell in January but new orders figures suggest growth for 2016.

In January 2016, output in the construction industry decreased by 0.2% compared with December 2015 and by 0.8% compared with one year earlier.

Professor Noble Francis, economics director at the Construction Products Association, commented: “The fall in the ONS’s construction output in January was disappointing but largely reflects the impacts of poor weather at the start of the year with floods in many parts of the country. In addition, skills shortages in sectors such as house building have meant that project costs have risen and affected the viability of sites.”

Within all new work, there were decreases in public new housing (-10.6%) and infrastructure (-8.6%), which were offset by increases in private commercial (4.7%), public other new work (1.6%), private industrial (0.7%) and private new housing (0.6%).

New orders for the construction industry in Quarter 4 (Oct to Dec) 2015 were estimated to have decreased by 0.5% compared with Quarter 3 (July to Sept) 2015 and increased by 1.4% compared with Quarter 4 (Oct to Dec) 2014.

Professor Francis continued: “This fall in output is expected to be a temporary, however, and the ONS’s construction new orders data suggest that activity should increase significantly during 2016. Although new orders in Q4 were 0.5% lower than in Q3, they were still 1.4% higher than a year ago. Furthermore, new orders can be volatile, so it is better to look at the data within the context of the year as a whole. New orders in 2015 were 2.8% higher than in 2014.

“Our forecasts anticipate that output will increase 3.6% in 2016, with growth in the three largest sectors of construction; private housing, commercial and infrastructure. Nevertheless, whilst fundamentals such as projects in the pipeline remain good, the risks around the forecast are quite high due to skills shortages, concern about the delivery of major projects like Hinkley Point C and increased uncertainty for investors owing to the EU referendum.”

The second estimate of gross domestic product (GDP) for Quarter 4 (Oct to Dec) 2015 published on 25 February 2016 included an estimate of construction which showed a decrease in output of 0.4% in Quarter 4 (Oct to Dec) 2015. This estimate has been revised upwards by 0.7 percentage points to an increase of 0.3% in this release. This has no impact on GDP to 1 decimal place. More information on revisions are included in the Background notes section of this bulletin.

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