The standout result from Q1 is the poor performance of infrastructure - but this could be a temporary shortfall

Simon Rawlinson

While Friday’s Q1 output figures were always going to be weak, the depth of the downturn reported by the ONS still came as quite a surprise. Output in December and January had been so poor that the estimate of a 3% reduction in activity suggested by the first quarter GDP figures had assumed some upward revisions to published data.

In the event, output data for January and February was not revised upwards, and overall output for the quarter fell by nearly 5% - threatening a further downgrade of 0.1% to the second GDP reading. Although non-seasonally adjusted data from March suggests a return to normal conditions, the data suggests a £1.36bn shortfall.  

We have to ask the question - does a more efficient industry mean a smaller industry?

The standout result from the first quarter release was the dismal performance of infrastructure, down by 15% compared to the quarterly average the previous year. Given that infrastructure is our most dynamic sector, is this a short term blip or a worrying trend? On the positive side, Q2 output bounced back strongly in the past two to three years and there was strong new orders data in the fourth quarter. Orders were however not so strong in the middle of the year, so this could well be a temporary shortfall prior to more projects kicking in.

One possibility is that some of the reduction in output relates to the government’s success in reducing costs on projects. Infrastructure UK recently announced that it had achieved £1.5bn in savings on projects. While the theory is that these savings will be recycled to deliver “more for less”, there will inevitably be a slowdown in cash flow before the new work comes on stream. Is a more efficient industry be a smaller industry?

Whatever the cause, industry needs to focus on converting the available pipeline into output and jobs. June’s first quarter new order figures could well attract more than the usual level of attention.