A sector technically in recession

The latest economic output data from the Office for National Statistics shows the UK economy grew by 0.4% in the third quarter of 2017. This follows growth of 0.3% in Q2. The sector breakdown of UK economic growth shows that services continue to drive growth, accounting for 79.3% of output in the latest statistics. However, its rate of growth is slowing, to 0.4% in Q3; before the economic downturn the average growth rate in services was 0.8%.

The production sector (which is predominantly manufacturing) accounted for 14% of output, with the rate of growth accelerating recently as the weaker currency has boosted exports. Production grew by 1% in the latest quarter. Finally, construction accounted for 6.1% of output, according to the latest figures. However, it was the one sector that shrank in Q3, declining by 0.9%. This followed a contraction of 0.5% in Q2 – and two consecutive quarters of negative growth is a technical recession.

The main reason for the quarterly decrease in output is falls in housing repair and maintenance as well as private commercial work. Private housing repair and maintenance declined by 1.7%, while the corresponding public housing figure showed a fall of 3.9%.  New work in the private commercial sector declined by 3.1% between Q2 and Q3. Over the same period output in the infrastructure sector fell by 2.1%.

Traditionally the commercial, infrastructure and housing sectors account for the majority of construction output, so these falls are notable. However, the private housing sector, the major driver of construction growth in recent years, was still positive and grew by 1.7%. This all leaves construction in a rather precarious situation, where it is reliant upon the housing sector to continue to grow and support the downturn in other construction sectors. This scenario is not new, but with the tide of uncertainty flowing through the economy, there is the danger that these non-housing sectors will continue to return a subdued performance. It is for that reason that I expect the industry to remain broadly flat for the foreseeable future, until businesses and consumers rediscover their investment appetite.