Third quarter output falls sharply

Construction output fell by 2.2% in the third quarter of the year, according to the first official estimate produced by the Office for National Statistics.

The figure was contained in the ONS preliminary estimate of GDP for the third quarter of the year, and is produced after around 40% of the data which makes up construction output figures has been collected.

If the fall is confirmed once the final figures are in, it will be the first quarter on quarter fall in construction output for two and a half years.

The fall had been expected, after initial estimates for output in July and August both showed declines in output, of 1% and 4.3% respectively.

The ONS said that UK GDP grew by 0.5% overall with growth seen in both the production and dominant services sector.

The fall, which implies third quarter output of around £32.3bn, means the construction economy is still languishing well below its 2007 peak, where quarterly output topped £33bn for six consecutive quarter.

Dr Noble Francis, economics director at the Construction Products Association, said the fall should be seen in the context of skills shortages and wage inflation, which was hindering the viability of many sites. “In the private commercial sector, the largest construction sector, there are still many projects in the pipeline due to contracts that were signed 18-24 months ago. However, sharp rises in costs since then, due to a lack of skilled labour, have adversely affected margins and meant that many projects are on hold for the moment whilst contractors go back to clients and renegotiate prices.

“Overall, recovery is never a straight line and there are always a few bumps and scrapes along the way.  Projects in the pipeline across most construction sectors suggest that activity in the industry will rise in 2016 and our forecasts anticipate 4.2% growth in total construction next year, driven by recovery in house building, commercial and infrastructure activity.  Skills shortages, however, are proving to be a key issue constraining growth for the industry.”