Light at the end of the tunnel for beleaguered builders
Chris Williamson, chief business economist at IHS Markit, has commented on the latest UK construction figures from the Office for National Statistics.
He said: “The sector suffered its largest quarterly decline in output for four years during the three months to September. However, survey data suggests that the building industry is seeing renewed signs of life as we move towards the end of the year.
“ONS data shows that the output of the construction sector fell by 1.1% in Q3 2016. That’s better than the initial 1.4% decline that was estimated, but isn’t enough to cause any GDP revision. It’s also the biggest drop since Q3 2012, and it’s the second successive quarterly decline, meaning the construction sector is now in a technical recession.
“There is light appearing for beleaguered builders, however. First, the downturn had been signalled in advance by survey data which have since revived. The Markit/CIPS PMI survey has shown construction industry output rising in both September and October, with the rate of growth accelerating to the highest since March. Second, the official data lags behind the survey but likewise recorded an upturn in the month of September, with output up by 0.3% compared to August.
“Both the official and business survey data hints at the construction industry starting to revive after being hit hard by the economic and political uncertainty that surrounded June’s Brexit vote. However, there is clearly a considerable degree of caution which continues to curtail construction growth. The PMI surveys showed growth in October being driven entirely by residential house building. Commercial building activity and civil engineering both saw small declines. While the upturn in house building is welcome news for a country suffering a shortage of homes, the weakness of commercial building is a particular worry as it hints as a lack of investment appetite.
“The upturn in the September data and the business surveys nevertheless points to the construction sector pulling out of its EU vote-related slump and making a positive contribution to the economy in the fourth quarter. The extent to which the upturn lasts of course depends on whether the government ensures confidence is maintained as it paves the road to Brexit.”