Construction sees April rebound but sector still sluggish

Construction output lifted 2.5 per cent in April compared with a 3.6 per cent slide in March, the Office for National Statistics (ONS) said.

It was the largest month-on-month increase since January 2014, and outstripped City consensus expectations for a 1.7 per cent increase.

City economists had attributed the setback in March to a fall in both new work being carried out and repair and maintenance activity, exacerbated by an early Easter.

By contrast, construction growth in April was aided by a 1.9 per cent month-on-month rise in repair and maintenance work, offsetting a 1.1 per cent month-on-month fall in infrastructure activity.

Economists said the underlying performance of construction remains sluggish as output in the three months to April fell 2.1 per cent compared to the previous three months.

Compared to a year earlier, output was down 3.7 per cent. Howard Archer, chief UK economist at IHS Global Insight, said April’s “decent looking increase masks an underlying weak performance” as it failed to fully make up for the drop in March “when activity may well have been hit by the earlier Easter”.

Archer also warned that a vote Remain in the UK’s Brexit poll on 23 June may not be enough to kick-start the long-term performance of the industry.

“If the referendum results in a vote to stay in the EU, construction will obviously be looking to the reduced uncertainty to cause delayed projects to kick in,” he added.

“However, there is the concern for the construction sector that confidence and economic activity may not bounce back that well after the EU referendum and that clients remain reluctant to commit to major projects.”

The sector accounts for about 7 per cent of Britain’s GDP – more than utilities, mining, agriculture and fishing combined.

But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the failure of construction to recover fully from its decline in March left it on course “to make a negative contribution to gross domestic product growth in the second quarter of the year”.

Earlier this month, the closely-watched Markit/CIPS construction purchasing managers’ index (PMI) said the sector was its weakest for almost three years in May.

Markit highlighted the “heightened uncertainty” over the EU referendum. The PMI report showed a construction reading of 51.2 last month, down from 52 in April. A reading above 50 indicates expansion.

The Bank of England has cited weak commercial property transactions as evidence companies are holding back on investment ahead of the referendum.