Large decreases in new public projects drag output down

state of play

Construction output fell 8.5% in April compared to the previous year, according to the Office for National Statistics.

The ONS added that construction output taken over the three month period between February and April also fell 6.7% on the previous year.

The largest decreases were in new public projects, excluding housing and infrastructure, (down 22.4%) and new public housing (down 22.1%).

The figures come after the ONS said last month that construction output for the first quarter of 2012 was even worse than initially projected, with the total volume of output falling by 4.8% compared with the last quarter of 2012, rather than the preliminary estimate of 3% released at the end of April.

The downward revision subsequently led to a downgrade of overall GDP growth over the first quarter of 2012, with the economy contracting 0.3%, revised down from 0.2% in the original estimates published at the end of April.

Steve McGuckin, managing director of the construction and programme management consultancy Turner & Townsend, said the latest figures made for “pretty painful reading”.

“They suggest that the construction industry’s challenges aren’t as bad as we thought. They’re worse.

“With public sector construction down more than 22% on this time last year, the impact of the government’s austerity cuts is clear.

“There have been some signs of life in the private sector, but their impact has been to do little more than mitigate the pain.

“The hope persists that the private sector will ride to the rescue of a sector that’s been hit particularly hard by the decline in public spending. But these figures clearly show that it hasn’t happened yet.

“The pain isn’t being spread equally over the regions either - with South East England proving more resilient than almost everywhere else.

“Demand is still there, but competition for work is very intense. The major players are surviving, even if their margins have got steadily tighter.

“Niche players who excel at what they do are also bearing up well, but it’s the middle ground - non-specialists whose services are commoditised - who are most at risk.”

Simon Rubinsohn, RICS chief economist, said the figures were “disappointing”. “After a very weak start to the year, we had hoped that the recovery seen in the March figures could be the beginning of a more upbeat trend.

“New work, repair and maintenance and infrastructure all saw a drop in output in April and there is little sign that government policy on housing is having any impact on residential development.

“There has been little change in private housing output from the first quarter average or the same period last year and worryingly, it now looks likely that construction output will fall over the course of this year by rather more than the 3% we previously envisaged.

“Lack of finance to support development as well as a shortfall in demand remain the key factors weighing down the construction sector. The latest proposals from Sir Mervyn King are aimed at increasing the availability of bank funding for businesses and is welcomed but it is far too soon to conclude that it will result in more finance being made available for the hard-pressed construction sector.”

Noble Francis, economics director at the Construction Products Association said the figures suggested prospects for the UK economy escaping recession in Q2 were “dissipating rapidly”.

‘The government has made much play of private sector construction leading the recovery as the public sector cuts bite but it is clear that this is not the case. Private sector work was clearly hindered by investor confidence, adversely affected by euro zone uncertainty, and this was exacerbated by the poor weather in April.

“With further public sector cuts in the pipeline and little to suggest that a resolution to the euro zone crisis is imminent, it is clear that the trend in output during the next 12-18 months will be downward. The IMF has openly stated that government should do more to switch current spending to capital investment, which would help to drive the UK out of recession and support future growth.”