The industry’s prospects remain positive despite monthly blips
It was with some surprise that I read the latest statistical release from the Office for National Statistics showing that the construction industry had declined in January 2015. This made for the usual headlines stating that the UK’s economic recovery was losing steam as housebuilding falls. I understand that it makes good copy to suggest a monthly fall in construction output equates to a major story, especially in the run-up to a general election. However, these statistical releases must come with an important caveat: they are often based on a survey response rate of 40% and in recent times have been subject to significant (often upward) revisions. For example, the initial estimate of construction output for January 2014 was 1.4% monthly growth and a 5.4% yearly decline. This has now been revised upwards to 5.8% monthly growth and 12.1% yearly growth. Despite these revisions, economists and analysts find the monthly statistics useful as an early indication of what the conditions are within the industry, and the media are interested in how construction performs.
These statistics should be read in a longer-term context and alongside the sentiment surveys that are produced each month. In addition, contract activity at pre-construction stage is a good barometer of the general direction of travel in the industry (as opposed to a solid predictor of growth rates). In both January and February sentiment improved alongside contract activity which suggests that the start of 2015 has rebounded from a slow end to last year. Contract activity in the commercial and retail sector, which has been performing comparatively poorly of late, seems to have picked up at the start of 2015. Commercial developments in the pipeline will also contribute to growth over the next 12 months. Housing remains strong, with large pipelines and strong profits. This leads me to remain positive about the industry’s prospects this year, despite the monthly blips.
Michael Dall is an economist at Barbour ABI