Construction still in recession

The latest construction output data released by the ONS show that the industry remains in recession, with output volumes falling by 2.6% during the third quarter to stand 11.3% down on a year ago. Of particular concern, the decline during the quarter was led by a drop in private sector activity. Private new housing output dropped 4% during the quarter, while private housing repair, maintenance & improvement work was 3% lower than during the previous three months; an indication that consumer confidence remains fragile. Private commercial output was also 8% lower. 

In addition public sector building remains weak, with public new housing output 19% down on a year ago and public non-residential work 20% lower. Infrastructure output rose by 10% during the quarter but was still 11% down on a year earlier. 

The latest Glenigan Index, for the three months to October, was 1% down on a year ago. Whilst private housing starts repeated last month’s strong performance, this only offset the subdued flow of underlying starts in other sectors. Accordingly industry output is set to remain flat near term.

The slow pace of the private sector recovery in activity is intensifying the pressure on the Chancellor to provide for increased government funded investment in the next month’s Autumn Statement. Certainly the planned re-launch of the Private Finance Initiative is an opportunity to secure additional funding for major infrastructure and public building projects, at minimal ‘upfront’ cost the Treasury. However such schemes will take time to progress to work on site. Additional support for public funded repair, maintenance and improvement work, which has fallen back in recent months, would feed through more quickly to work on site and help secure a recovery in construction activity during 2013. 

Chart 1: Construction output – Third Quarter 2012