Summer sees construction output slide
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UK construction output slowed again in August 2016, according to official figures.

The Office for National Statistics says that UK construction output declined by 1.5% compared with July 2016, although it was 0.2% higher than in August 2015.

Over the three summer months of June to August 2016, construction work decreased by 1.3% compared with the previous (pre-referendum) three months of March to May 2016. Year-on-year, summer output was down 0.5%, the ONS calculates.

The work categories of all new work, and repair & maintenance both reported decreases in August, falling by 1.4% and 1.5% respectively on July, with the largest decline in all new work coming from infrastructure.

Industry comment

McBains Cooper chief executive Michael Thirkettle said: “These figures may in part reflect a ‘Brexit hangover’ given the short-term uncertainty around the result, although we would caution against too much being read into the result of the EU referendum in isolation.

“The real concern for the industry, however, is what a ‘hard Brexit’ will mean for its labour supply.  Because of skills shortages in the UK, skilled EU trades are a vital source that will be cut off once we leave the EU.  Demonising skilled migrant workers and imposing regressive immigration policies will demolish any hopes of meeting housebuilding targets and solving the housing crisis.  The government should send a signal that migrants will be welcome in the industry, and add skilled construction workers to its shortage occupations list.”

Turner & Townsend UK managing director Jon White said: “Such an abrupt reversal in construction sector output serves as a useful reality check for anyone tempted into complacency by the construction sector’s initial resilience. The industry may have absorbed the initial shock of the referendum result with barely a ripple, but the benign limbo could not last forever.

“However, sentiment in the sector remains strong. The latest PMI survey showed confidence had vaulted into positive territory, and on the front line we’re seeing a steady stream of new orders in both the property and infrastructure sectors. Public sector spending on construction projects is creeping up, and the industry has been buoyed by the prime minister’s green light for the Hinkley Point C nuclear power station. The government’s renewed commitment to infrastructure projects is encouraging – both for the construction industry and the economy as a whole. Such long-term, strategic programmes are the least likely to be blown off course by Brexit concerns.

“However in an industry that thrives on certainty, the post-referendum uncertainty is taking a toll. In the immediate term the weak pound is leading to an increase in the cost of imported components and materials. Coupled with the long-term skills shortage, this upward pressure on material costs risks fuelling substantial price inflation.

“While the property sector continues to be vibrant, with strong developer demand and competition among contractors, it is too early to assume that business as usual will carry on indefinitely. The construction industry is famously cyclical and well used to responding to shocks. So far it has taken the referendum result in its stride, but with Brexit set to be a lengthy process rather than an event, there is a long way to go yet.”