Construction activity hit by infrastructure slump

Britain's construction industry suffered a surprise slide in output in August, as an infrastructure slowdown added further pain to the struggling sector in the wake of the EU referendum.

Infrastructure activity fell for the sixth consecutive month in August, according to the ONS. Picture: Jeff J Mitchell/Getty Images

The Office for National Statistics (ONS) said construction output dropped 1.5 per cent month-on-month. That compares with a 0.5 per cent increase in July and economists’ estimates of zero growth.

The official figures showed that all new work dropped by 1.4 per cent, while repair and maintenance fell 1.5 per cent.

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Year-on-year figures also painted a bleak picture for the sector, with construction rising by just 0.2 per cent compared with August 2015, far below consensus forecasts for a 1.2 per cent jump.

A major driver of the slowdown was a drop in infrastructure activity, which fell 5.1 per cent in August following a 6.1 per cent increase the previous month.

Infrastructure was down 9.3 per cent compared to August 2015, which marks the sixth consecutive month of year-on-year decreases, the ONS noted. Infrastructure accounts for projects like roads, water, sewage, electricity and railways.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “Construction output only accounts for 5.9 per cent of GDP so this has limited implications for the likely third-quarter growth outturn.

“We estimate third-quarter GDP growth of 0.4 per cent quarter-on-quarter, driven by consumer spending and decent services output. However, a marked fall in construction output over the quarter would pose some downside risk.”

Kate Davies, a senior statistician at the ONS, said: “As the fall this month is led by infrastructure, it seems unlikely that post-referendum uncertainties are having an impact.

“Monthly construction data can be quite erratic, though, so we would warn against trying to read too much into one set of figures.”

Gordon Reid, business development manager at Kier Construction Scotland – which is involved in the renovation of Glasgow School of Art’s Mackintosh building and Edinburgh University’s College of Art, insisted the group was not witnessing any “material slowdown” in activity, although he noted there was “some degree of pause and reflection” in parts of the sector.

His comments were echoed by Allan Callaghan, managing director of Cruden Building & Renewals, who said: “While disappointing, these latest figures come as no surprise following a period of political and economic uncertainly coupled with a rise in material costs.

“I’m confident that those in the construction sector will continue to weather the storm and Cruden in particular will continue our steady and sustainable growth over the coming months and into 2017.”