Construction output falls 2.6% in January

Construction output has continued to drop after the ONS revealed a 2.6% fall in January.

The fall is the sharpest drop in output since 2013 and is the opposite of an anticipated 1.2% rise economists had predicted for the sector. The new figures follow on from the 0.6% drop in December and also show new work orders fell during the month by 4.2%.

According to the ONS, private commercial work fell by 6.6% last month, with infrastructure work falling 2.7% and total housing by 5%. The drop in housing was attributed by the ONS to weak mortgage lending and high house prices, which has dampened demand. The new figures showed that public work had dropped by 18.4%, and private housing was down 1.3%. Construction output is now 3.1% lower than the same period last year.

Commenting on the figures, Michael Dall, economist at Barbour ABI, said: “Today’s reported decline in outputs is disappointing news for the construction industry but the pipeline of work remains strong and therefore this moderate decrease is not necessarily indicative of any fundamental changes within the industry.

“Although down this month residential projects should drive activity throughout the year in line with growth observed in 2014. Infrastructure could also provide further stimulus as there is a high volume of pending projects from last year that are set to commence this year. This is obviously dependent on the outcome of the General Election as it remains to be seen what the new administration prioritises once in power.”

Chris Temple, engineering and construction leader at PwC, said: “Despite these latest figures, we continue to expect the sector to show solid, healthy growth during 2015. As we approach the general election, it is possible that we will see a further temporary slowdown in new orders. However, we don’t expect that this will be significant enough to counteract the upward trend of growth for the year and there is still strong confidence in the sector for 2015 and beyond.

“There is a lack of large infrastructure projects at the moment, accounting for the lull in that part of the sector. Furthermore, uncertainty about the economy in Europe has knock-on effects for business confidence and the short-term order books of construction firms.

“There are no indications that this will become a longer-term trend, and our clients are highly optimistic for their growth prospects in 2015. Overall the picture for the construction sector is healthy.”

Stefan Friedhoff, Global Corporates managing director for construction at Lloyds Bank Commercial Banking said the drop may prove to be a short term blip: “While this data appears to show a continuation of the disappointing output registered in the final few months of 2014, other industry surveys suggest 2015 has had a better start.

“The sector is resilient and firms will remain vigilant in the hope that spending on construction and infrastructure increases as the year progresses.”

The ONS also revised its estimate for construction output in the fourth quarter. It now estimates output fell 2.2% over the last quarter of 2014, compared to the previous quarter, a marginally higher fall than the 2.1% drop it last estimated.