UK Construction Industry Stays Contraction-Hit, Despite a Seemingly Positive April

19th June, 2018


With construction output recording an increase of 0.5% in April 2018, it brought a ray of sunshine to the UK construction industry, which has recently been witnessing a steady contraction.

However, the woes of the industry seem to be far from over.

Despite the increase, the statistics from February to April 2018 show a decrease in output by 3.4%. The fall is steep, the biggest that the industry has experienced since August 2012. A fall of 3.7% was witnessed in new construction work, whereas repair and maintenance saw a fall of 3%.

The decrease has been steady given that there was a decrease of 4.6% in Quarter one, recorded over the months of January through March 2018, compared to the previous quarter. Moreover, the fall in Quarter one is by 6.6% compared to the same quarter of the preceding year.

There were periods of increase towards the end of 2017 though. A steady monthly rise in construction output was witnessed during the last two months of 2017 – it was, in fact, a record output for the construction industry.

The output was highest in December 2017 when it saw an increase of 30.3% of the lowest output recorded over the past five years, from April 2013. The bounce in output experienced in April 2018 has managed to put the output steady – 23.4% more than the lowest output recorded in April 2013.

A fall in output by £1.35 billion was witnessed over the span of three months to April 2018. The fall was experienced in almost all construction sectors with prominent damage coming from new-work sector. This sector saw a steep decrease, by £379 million over the three months leading to April 2018.

Other construction sectors that witnessed a steep decline include new work in private housing (by £189 million) and housing repair and maintenance (by £230 million).

The increase that has been witnessed in April 2018 is by £68 million, in comparison to last month. Sectors that contributed majorly to the overall increase were construction infrastructure, which witnessed an increase in value and new work in the private commercial sector.

Interestingly, both these sectors had a weak start as 2018 approached. The increase witnessed in April 2018 in both sectors was by £40 million (infrastructure) and by £37 million (private commercial).

Another prominent contributing sector to the April 2018 increase was repair and maintenance in the non-residential segment, which showed an increase by £34 million.

Economic experts stay sceptical though. Some are of the opinion that the increase witnessed in April 2018 could be an illusion of recovery. Industry developments such as liquidation of Carillion and bad weather conditions in February and March, could have contributed to this seeming growth in April.

The reason why experts feel the increase need not necessarily be a sign of recovery relates to how weak the output fared in comparison to April last year. There is a reduction of 3.3% in construction work, which equals £430 million.

The only sectors that recorded growth were industrial segments and private housing. Private housing owes its increase to the selling season that is traditional in the nation. The decrease in lead times in industrial settings led to the growth recorded in the industrial sector.

Further growth could be slowed down by the decrease witnessed in infrastructure and commercial construction, which contribute to almost 1/3rd of total construction output, experts say.

Other factors that experts attribute to the dip in construction output include increased costs for construction companies, including rising remuneration and material costs. The latter, experts believe, will continue to increase following a fall in sterling value post EU referendum.

Brexit and the questionable future of immigration and recruitment post-Brexit place the future of UK construction in uncertainty, economists conclude.

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