Figures released by the Office of National Statistics (ONS) suggest that the construction industry experienced a slight increase in demand and orders in Q3, contrasting with the decline in output recorded over the same period.
According to the latest figures, quarterly new orders increased in July to September 2015 by 0.8% compared to Q2, which ran from April to June. However, the new orders figures were static compared to Q3 in 2014.
Michael Dall, lead economist at Barbour ABI, said: “The third quarter in construction saw an increase in new order values despite the wider slowdown in growth across the UK economy. In particular, the infrastructure sector experienced strong gains in the third quarter, with major projects such as the Thames Tideway Tunnel reaching the contract stage.
“These are the types of major projects that have been scarce in recent years so they provide a welcome fillip to the sector and, after further funding was confirmed in the Comprehensive Spending Review, future prospects for infrastructure have improved significantly.”
“The falls in public housing are a major concern, despite the chancellor’s announcement of ‘400,000 new affordable homes’ in November’s Autumn Statement. Public housing output in October was 3% lower than September and 25.9% lower than a year ago.”
Dr Noble Francis, Construction Products Association
However, a more worrying sign was that new orders for public housing were down 26.7% compared to Q3 2014, as housing associations grapple with changes to their funding regime.
As well as the quarterly orders figures, ONS also released the monthly construction output figures which showed an increase in output for October of 0.2%, compared to September.
This is the first increase in output for three months, following a decrease in August’s figures and no change in September.
The boost in output was driven by a 4.1% increase in private commercial work in October compared to September, as well as a 2.3% increase in private new housing.
However, many other sectors saw declines in output, with public new housing, private industrial, public other new work and infrastructure reporting drops of 2.8%, 1.6%, 1.2% and 1.1% respectively.
Dr Noble Francis, economics director of the Construction Products Association (CPA), highlighted the contrasting fortunes for private and public house building sectors.
“Private housing output rose 2.3% in October compared with September and was 4.6% higher than a year ago. Going forward, policies announced by the chancellor in his recent Autumn Statement, such as London Help to Buy, should ensure further growth in private housing output by incentivising major house builders to increase building rates over the next 12 months.
“However, there are mounting concerns regarding affordability in the housing market, especially in London where average house prices are already 9.6 times average earnings.”
Francis continued: “The falls in public housing are a major concern, despite the chancellor’s announcement of ‘400,000 new affordable homes’ in November’s Autumn Statement. Public housing output in October was 3% lower than September and 25.9% lower than a year ago.
“The ONS figures also highlight that new orders for public housing in Q3 were 26.7% lower than a year ago due to funding issues for housing associations as they face falling public sector funding, cuts in social rent and the extension of Right to Buy. As a result, the trend for public house building appears to be sharply negative over the next 12 months.”
At Barbour ABI, Michael Dall said: “In addition, the latest ONS output figures for October, which shows growth of 0.2% compared with September, suggests a potentially stronger finish to the end of the year after the summer slowdown.
“Overall, the levels of appetite for investment across construction remain strong at the contract stage. However, the problems lie more on the supply side at present, with skills shortages in particular a major challenge in moving projects from the conceptual to the delivery phase.”
