This month’s figures show slight falls in commercial retail and infrastructure despite a generally positive sentiment in the industry, so what’s going on?
A surprise dip in the construction output figures for May raised a few eyebrows in the City, with some claiming that the momentum was dwindling in the UK economy.
That is a tad premature, I would suggest, not least because construction only equates to around 7% of the UK GDP figures. However, what is noticeable is that the pace of growth in evidence over the last few months is starting to fall back slightly. What stood out most was monthly and yearly falls in commercial and retail, and infrastructure, which, along with housing, are the main sectors within the industry.
The residential sector was flat month-on-month but there is no sign that this represents anything other than a blip as the longer-term picture is still one of growth. A look at the planning pipeline is also encouraging for the continued growth of the residential sector.
However, the lack of growth in other sectors does raise some interesting questions. Business investment is on the rise and there are plenty of infrastructure initiatives being announced by the government. At the same time sentiment indicators for construction, and indeed all sectors in the economy, are at historic highs.
What stood out most was monthly and yearly falls in commercial and retail, and infrastructure, which, along with housing, are the main sectors within the industry
There is no doubt that positive sentiment does not always translate into orders and output, and that is more likely to be true after a recession as deep and brutal as the one the sector endured. In that respect it is no surprise that residential is the star performer since that is where demand is most obvious. Even before the economic downturn the latent demand for housing already existed. This was exacerbated by the collapse of the market in 2008, which ground the housebuilding sector to a halt, and allowed for even more pent-up demand to develop. Therefore the housebuilders have had more confidence in the pipeline of orders and, aided by government schemes such as Help to Buy, the growth in output has been significant.
It is less clear why the other major sectors have struggled. One reason suggested is that there are a number of skill shortages in the industry. This was the subject of much debate at the Greater Manchester Construction Summit earlier this month and last week a RICS survey highlighted that there were increasing skills shortages across many trades. Could that be holding back a broader recovery? In reality I think it is a combination of a reluctance to invest and some acute skill shortages. It is encouraging that these skill shortages have been identified. Solving them is notoriously hard to do.
Michael Dall is an economist at Barbour ABI