Latest statistics show construction industry has shrunk in first quarter of 2015

Michael Dall

It has been a strange start to the year for the construction industry with the latest statistics from the Office for National Statistics (ONS) showing it had shrunk in the first quarter of 2015. In fact, if you factor in that the industry also declined in the last quarter of 2014, the construction sector is technically in recession. The major caveat to this is that the ONS often revise statistics upwards as the late submission of survey returns can make a large difference to the overall trends. Statistics such as these can also lag behind what is happening “on the ground” since financial commitments to undertake work differ from activity actually occurring.

The statistics from the ONS also differ from the various state of trade surveys, including Markit and the Construction Products Association which have all suggested a strong start to the year for the industry. So what is really going on?

There is a lag between the ONS output statistics and activity on the ground but the industry has certainly not grown as fast at the start of the year as many trade surveys suggest. I do think that for some of the larger sectors in construction, such as infrastructure, the changing nature of work may mean that some of the growth in output is not fully covered by official statistics. For example, many of the larger renewable energy projects in the UK include large off-site manufactured products which may not be included in the actual output figures for construction. These are anomalies that I am sure will be addressed in the future.

That said, there has been a notable drop in output in the commercial sector at the start of the year and, my sense is, this was in part due to uncertainty relating to the general election. This should resolve itself now that the election has resulted in a stable government. What a referendum on Britain’s membership of the EU might do to investor confidence is a debate I shall leave for another time.

Michael Dall is an economist at Barbour ABI

Click here for the latest Barometer data on all construction sectors, compiled by the CPA/Barbour ABI