Fall in construction output revised upwards from -5.2% to -3.9% in second quarter of 2012


Construction output fell 3.9% in the second quarter of this year compared to the first quarter, marginally less than 5.2% first stated, the latest Office for National Statistics figures have shown.

The figures for the three months from April to June showed the total volume of construction output fell 3.9% compared with the first quarter of 2012, a slight upwards revision on the 5.2% contraction stated in last month’s overall GDP figures.

Analysts predicted the upwards revision of the construction output figures could lead to a slight revision upwards of the 0.7% contraction in overall GDP figure, which was the biggest fall in quarterly UK economic output since the first three months of 2009. But the fall on output was still down 9.5% compared with the same period in 2011.

The figures showed the volume of all new work fell by 4.6% and repair and maintenance fell by 2.7% compared with the first quarter of 2012. New work was down 12.8% and repairs and maintenance down 2.8% on the same period last year.

The ONS said there were widespread falls in the volume of construction output in the second quarter of 2012, when compared with the first quarter of 2012, with falls in eight of the nine sectors. The ONS said the largest decrease was in new infrastructure, which fell by 8.6%.

The ONS said the movement of the late May 2012 bank holiday to June 2012, the additional bank holiday for the Queen’s Diamond Jubilee and the unseasonal weather were likely contributing factors to the decline in the construction sector in the second quarter of 2012.

Reaction to the output figures

Steve McGuckin, managing director of the construction and programme management consultancy Turner & Townsend, said:”All the sunshine and Olympic feelgood factor in the world can’t hide the fact that these are black days for the construction sector. Stagnation has moved from the stuff of nightmares to the new norm.

“Despite Sir Mervyn King’s assertion this week that the economy is ‘slowly healing’ - construction is still walking wounded. Output in the last quarter tumbled to levels not seen since the depths of the 2009 recession. The big drop in infrastructure output is of particular concern for the economy as a whole.

“Many in the industry had hoped that if they could just limp through 2012, next year would be better. But with the sector continuing to contract, the optimists are being forced into a drastic rethink.

“The pressure is causing a schism between the sector’s limited number of big players who have a strong balance sheet and the capability to deliver the big projects, and the small and medium-sized firms who are being squeezed by ever-greater competition.

“As a result those in the middle ground are having to slash margins to negligible levels - and in the most extreme cases, some firms are pitching for work at below cost, simply to keep cash-flow coming in.

“Such desperate measures are clearly unsustainable, and the industry as a whole is having to adapt to a tough environment which is still showing no sign of improving.”

The Civil Engineering Contractors Association (CECA) said the figures signalled “a looming infrastructure crunch”

CECA said the fall in infrastructure outputfor the second consecutive quarter, reflected the findings of CECA’s Workload Trends Survey, which showed that any fledgling recovery in the infrastructure sector had been stamped out, with a second consecutive quarter of declining workload.

CECA director of external affairs Alasdair Reisner said: “These alarming figures reinforce fears over the prospects for the infrastructure sector.

“While we welcome steps taken to support the long-term pipeline of major projects, there is a pressing need to stimulate activity on the ground now.

“We need action from government to release shovel-ready activity in infrastructure maintenance and minor works. We also need to see a break in the log-jam that is preventing private investment from flowing into infrastructure.”

Simon Rubinsohn, RICS chief economist, said: “Construction output has now fallen in each of the last four quarters dragging the total volume of work down to its lowest point since the fourth quarter of 2009.

“The fact that construction output is now barely above the low point for the cycle demonstrates the on-going crisis in the sector. The squeeze in public spending is being compounded by a worsening picture in the private sector with business confidence fragile and development finance in short supply.

“Government measures to support the sector have so far delivered little and it remains to be seen whether the latest guarantee scheme for stalled projects will be anymore successful.

“Moreover, with the Bank of England also now recognising the likelihood that the economy will record no growth whatsoever this year, the case for heeding the advice of the IMF is growing stronger.

“A more modest pace of fiscal adjustment underpinned by a higher level of higher infrastructure spending has the potential to play a critical role in supporting growth in the economy in 2013.”

Simon Rawlinson, EC Harris head of strategic research & insight, said: “Although today’s ONS figures have revealed things are not quite as bad as initially feared, the outlook still remains grim for the rest of the year.

“Whilst this picture is pretty much gloomy across the board, the most pressing concern is the continued drop in infrastructure output figures which are shrinking far faster than was originally forecast.

“Analysts will be anxiously looking for improved output from infrastructure in July and August to confirm that one off factors such as weather and the Jubilee have had a hand in very poor second quarter data.

“Based on the half year output to date the forecasts made earlier in the year that, in 2012, new work output would contract by -5% to -7% look depressing realistic. If this picture continues over the next two quarters then 2012 will be remembered as an outstandingly poor year for the construction industry”

Noble Francis, Construction Products Association economics director, said: ‘Looking at these figures, it is very hard to find anything positive to say in any part of construction. Across the 12 different construction indices, only one, non housing repair and maintenance, shows any growth at all and that at just 0.8% year on year and 0.1% quarter on quarter.

“However, what is most concerning is that private sector activity has also fallen sharply, implying that not just activity but also confidence is sadly lacking.

“This situation is rapidly becoming a crisis and at this rate I wouldn’t be surprised if manufacturers begin to shut down their operations and lay people off.

“There is an urgent need for government to address this situation by immediately embarking on a programme of repair and maintenance across all areas of the country, especially for housing and roads, clarifying the model by which private finance will be attracted to enable investment in major infrastructure projects and deciding government priorities for the amount of capital investment the country needs to stimulate growth.

“Without these measures recovery is unlikely to happen anytime soon.”

Mark Farrar, chief Executive of CITB-ConstructionSkills, said: “The new ONS construction output figures show a continuing trend for the construction industry - times are tough and there is no sign of a change in fortunes.

“One of the most frustrating things about today’s announcement is the slump in the volume of repair and maintenance work. With 26 million energy inefficient homes in the UK, the retro-fitting of green technology to improve environmental performance is a huge opportunity to provide an immediate financial injection to the industry - but this opportunity remains untapped.

“Today we are calling on government to take swift action to support the industry and to invest in construction as a route out of recession. Each £1 invested in the sector returns £2.84 to the wider economy, so it has the ability to transform the financial fortunes of the whole country.”