More signs of construction turning corner

Data released by the Office for National Statistics has provided more encouraging news on the UK economy.

Real output in Great Britain’s construction sector grew by 2.0% compared with the same month a year ago, due to a 5.8% increase in new work. The expansion in new work was partially offset by a 3.6% decline in repair & maintenance activity.

Scott Corfe, Managing Economist, Centre for Economics and Business Research, said: “The construction sector has fared poorly since the start of the financial crisis, with economic output in 2012 some 13.7% lower than in 2007.

“The latest labour market data show the number of workforce jobs in the sector in June 2013 was 11.6% lower than in June 2007 –  256,000 fewer jobs. Given this weak recent performance, the latest data from the ONS are welcome and suggest that the sector may be turning a corner.

Looking at new work in the construction sector, output growth was strongest for private housing, where construction activity in July 2013 was 14.7% higher than a year ago.

“This suggests that the recovery in the housing market seen in recent months, supported by schemes such as Help to Buy and Funding for Lending, is starting to translate into a recovery in house building.

“Infrastructure spending was 8.1% higher than a year ago in real terms, while private commercial construction activity was 6.6% higher.  Weighing down on growth were declines in public non-infrastructure construction work, as well as declining  work on private industrial construction.

“Overall, the latest official data on construction are encouraging and we expect the sector to start making a more positive contribution to economic growth over the coming months. Unofficial measures of construction sector activity, such as the Markit/CIPS Purchasing Managers’ Index (PMI) for the sector, suggest that economic expansion continued in August.

“The Q3 2013 ICAEW/Grant Thornton Business Confidence Monitor also showed that confidence in the construction sector  stands at a record level this quarter, providing a further indication that growth is returning. The strong growth in private sector housing construction is particularly promising, and may alleviate concerns in some quarters that government schemes such as Help to Buy are going to merely inflate house prices while doing nothing  to increase the stock of housing in the UK. There are now tentative signs of a supply-side response to these schemes emerging though on balance these are, in Cebr’s view, unlikely to be enough prevent housing becoming less affordable over the coming years.”

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