Growth in construction sector in Q2 of 2018
The latest release from the Office for National Statistics (ONS) has shown recovery in the construction industry, with output increasing 3.3% in the three months to July. This follows a weak start to the year caused by the fall of Carillion, bad weather and Brexit uncertainty.
After the fall in construction output at the start of 2018 caused by the Beast from the East, among other bad weather, output has now reached a record monthly level. This level is 30.9% above the lowest point seen in July 2013.
The construction industry as a whole rose by 0.5% in July due to “stronger than usual” housebuilding in the period.
Infrastructure and private housing new work are most notable for growth in this period. They increased by 11.5% and 10.4% respectively.
This growth has also been driven by maintenance and repair work, likely carried out after the bad weather passed.
What the officials are saying
ONS’ Head of GDP Rob Kent-Smith said, “Growth in the economy picked up in the three months to July.
“The dominant service sector again led economic growth in the month of July with engineers, accountants and lawyers all enjoying a busy period, backed up by growth in construction, which hit another record high level.”
McBains Chief Executive Michael Thirkettle said, “After the latest set of ONS figures showed an upturn following several months of decline, this second successive rise represents another much-needed boost to confidence in the sector.
“Underlying growth remains fragile, however, and the real test will be if this can be sustained in the months to come, given the uncertainty over issues like Brexit that have impacted on UK companies’ commitment to new projects over the last two years.”
Forecasts
Construction output is also going to continue to grow in 2019 and 2020, according to forecasts. The Construction Products Association (CPA) predict growth will expand by 2.3% in 2019 and 1.9% in 2020.
CPA’s Economic Director Noble Francis said, “Clearly the first quarter [of 2018] was difficult for the industry due to the demise of Carillion and the bad weather.
“Things improved markedly in the second quarter due to a catch-up in work as we would have expected but, overall, it’s mixed fortunes for contractors at the moment.
“On the positive side, house builders are keen on accelerating building rates outside of London and that is expected to be enough to offset sharp falls in house building in the capital.
“Firms working on major infrastructure projects also have a lot of work in the pipeline. Infrastructure output is forecast to rise by 13% in 2019.
“This growth is highly dependent on large projects such as HS2 and Hinkley Point C, the first of the new nuclear power stations. But, as ever, there remain concerns about government’s ability to deliver infrastructure projects without the cost overruns and delays that we have seen on Crossrail and HS2 recently.
“On the negative side, the elephant in the room is clearly Brexit uncertainty, which has had a big effect on international investment, especially where it is high up-front investment for a long-term rate of return, which is now highly uncertain. It badly affects demand in sectors such as prime residential in London, commercial office towers and industrial factories, which is dependent on manufacturing.
“Overall in construction, there is forecast to be a slight fall in activity, of -0.6%, in 2018 after five consecutive years. However, in 2019, we are anticipating of growth of 2.3% due to house building and infrastructure.”