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Infrastructure output helps construction industry to slight recovery

Published 09/09/2016

The Office for National Statistics said construction output was flat in July compared to a 1% drop in June, helped in part by a jump in house building
The Office for National Statistics said construction output was flat in July compared to a 1% drop in June, helped in part by a jump in house building

Britain's construction industry nudged out a slight recovery in the month following the EU referendum, thanks in part to growth in infrastructure output.

The Office for National Statistics (ONS) said construction output stalled in July, compared to a 1% drop in activity in June.

"Construction output was flat in July 2016 and there is very little anecdotal evidence at present to suggest that the referendum has had an impact on output," the ONS report said.

However, compared to a year earlier, construction dropped 1.5%, with r epair and maintenance for the period dropping 3.2% and all new work decreasing by 0.6%.

The official construction figures were aided in part by infrastructure activity, which rose 3.9% from a month earlier, the ONS said. That compared with a 9.6% drop in June.

Infrastructure includes roads, water, sewage, electricity and railways.

The ONS stressed that infrastructure can be "particularly volatile", so large changes in activity are not unusual.

Meanwhile, private commercial work accounted for the largest slide in construction output - having dropped 0.3% month on month.

"While the stabilisation in output in July and the second-quarter jump in orders is welcome, there are still major uncertainties for the construction sector going forward - particularly regarding clients willingness to commit to major projects particularly in the commercial real estate sector," Howard Archer, chief European and UK economist at IHS Markit, said.

House building rose 5.6% in July compared to a year earlier, but dropped 0.8% compared to June 2016.

Private sector home building dropped by 0.6%, while new public housing fell by 1.6%.

The ONS data contrasts with a private survey which showed signs of lacklustre construction activity in July.

The July Markit/CIPS construction purchasing managers' index (PMI) came in at 45.9, with a reading above 50 indicating growth.

It marked the sharpest drop in activity since June 2009.

However, the Markit/CIPS PMI showed signs of recovery in August, with the the index hitting 49.2, above economists' expectations of 46.5.

Samuel Tombs, chief UK economist at Pantheon Economics, said: "The strength of the official orders data also contrasts with the weakness of the PMI and the EC Economic Sentiment Indicator for the construction sector, which both point to sharp falls in output in the third quarter."

"Accordingly, we do not expect the construction sector to return to growth this year."

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