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Construction output falls 1.5% in August


Construction output rose 0.2% year on year in August compared with August 2015

Construction output rose 0.2% year on year in August compared with August 2015

Construction output rose 0.2% year on year in August compared with August 2015

Britain's construction industry was pummelled in August, as an infrastructure slowdown added further pain to the struggling sector in the wake of the EU referendum.

The Office for National Statistics (ONS) said construction output dropped 1.5% in August month on month, compared with July's 0.5% increase, and versus economists' estimates of 0%.

The statistics agency said all new work dropped by 1.4%, while repair and maintenance fell 1.5%.

Year-on-year figures also painted a bleak picture for the sector, with construction rising 0.2% compared with August 2015 , far below consensus forecasts for a 1.2% jump.

A major driver of the slowdown was a drop in infrastructure activity which fell 5.1% in August following a 6.1% increase in July.

Infrastructure was down 9.3% compared to August 2015, which marks the sixth consecutive month of year-on-year decreases, the ONS noted.

Infrastructure accounts for projects like roads, water, sewage, electricity and railways.

Kate Davies, a senior statistician at the ONS, said: "As the fall this month is led by infrastructure, it seems unlikely that post-referendum uncertainties are having an impact.

"Monthly construction data can be quite erratic, though, so we would warn against trying to read too much into one set of figures."

Meanwhile, total new home building dropped 1.3% compared to July, with new public and private housing falling 2.1% and 1.2%, respectively.

The amount spent on repair and maintenance dropped to £3.9 billion in August, which was its lowest level since September 2013.

Howard Archer, chief UK and European economist at IHS Markit, said that the overall contraction in construction activity is likely to weigh down third quarter gross domestic product (GDP) growth.

Construction output accounts for around 5.9% of GDP.

However, a ramp up in government spending could help revive the industry.

"The construction sector will take some heart from Chancellor Philip Hammond prioritising infrastructure and housing initiatives in his fiscal efforts to support the economy," Mr Archer said.

The Chancellor has already earmarked £2 billion for housing, on top of a £3 billion house building fund meant to offer cheap loans and financial guarantees for small and medium-sized developers, Mr Archer noted.

Further measures are expected when the Chancellor delivers the Autumn Statement on November 23.

But there are still challenges ahead, even with government support.

"Weakened prospects for the housing market are likely to counter increasing government support for house building which needs to see prolonged decent expansion to make genuine inroads into the UK's acute housing shortage," Mr Archer explained.

Enthusiasm could be further dampened by the devaluation of sterling, which would drive up the price of imports.

A "substantial amount" of building components and materials are currently imported.

Mr Archer said: "Construction companies' input costs look set to be pushed markedly higher by a sharply weakened pound."