Only non-housing repair and maintenance currently shows any growth.

Construction contracts by 10%/year

Published:  13 August, 2012

UK: The ONS construction output figures for Q2, published today, confirm that nearly every sector of construction activity, from private to public and from housing to infrastructure, has shrunk considerably over the last year and that overall, construction activity across GB has contracted by 9.5% in a year.

The figures reinforce a number of recent construction indicators, but there is growing concern that long-term damage is now being inflicted upon the industry. The sector has for some time been predicting this decline. 

Noble Francis, Construction Products Association economics director, said: "Across the 12 different construction indices only one – non-housing repair and maintenance – shows any growth at all and that at just 0.8% year-on-year and 0.1% quarter-on-quarter.

"What is of most concern is that private sector activity has also fallen sharply, implying that not just activity but also that there is a lack of confidence. 

"This situation is rapidly becoming a crisis and at this rate I wouldn't be surprised if manufacturers begin to shut down their operations and lay people off.

"There is an urgent need for government to address this situation by immediately embarking on a programme of repair and maintenance across all areas of the country, especially for housing and roads, clarifying the model by which private finance will be attracted to enable investment in major infrastructure projects and deciding government priorities for the amount of capital investment the country needs to stimulate growth. Without these measures recovery is unlikely to happen anytime soon.' 

Steve McGuckin, managing director of the construction and programme management consultancy Turner & Townsend, commented: "All the sunshine and Olympic feelgood factor in the world can't hide the fact that these are black days for the construction sector.

"Stagnation has moved from the stuff of nightmares to the new norm.

"Despite Sir Mervyn King's assertion this week that the economy is 'slowly healing' – construction is still walking wounded. Output in the last quarter tumbled to levels not seen since the depths of the 2009 recession. The big drop in infrastructure output is of particular concern for the economy as a whole.

"Many in the industry had hoped that if they could just limp through 2012, next year would be better. But with the sector continuing to contract, the optimists are being forced into a drastic rethink.

"The pressure is causing a schism between the sector's limited number of big players who have a strong balance sheet and the capability to deliver the big projects, and the small and medium-sized firms who are being squeezed by ever-greater competition.

"As a result those in the middle ground are having to slash margins to negligible levels – and in the most extreme cases, some firms are pitching for work at below cost, simply to keep cashflow coming in.

"Such desperate measures are unsustainable, and the industry as a whole is having to adapt to a tough environment which is still showing no sign of improving."

Simon Rubinsohn, RICS chief economist said: "Detailed construction data released this morning for Q2 suggests that the initial estimate of output in the sector published as part of the GDP number a fortnight ago was too negative.

"However, the revision needs to be kept in perspective as it still shows a drop in output of 3.9% in the latest three month period. Construction output has now fallen in each of the last four quarters dragging the total volume of work down to its lowest point since the fourth quarter of 2009.

"The fact that construction output is now barely above the low point for the cycle demonstrates the on-going crisis in the sector. The squeeze in public spending is being compounded by a worsening picture in the private sector with business confidence fragile and development finance in short supply.

"Government measures to support the sector have so far delivered little and it remains to be seen whether the latest guarantee scheme for stalled projects will be anymore successful.

"Moreover, with the Bank of England also now recognising the likelihood that the economy will record no growth whatsoever this year, the case for heeding the advice of the IMF is growing stronger. A more modest pace of fiscal adjustment underpinned by a higher level of higher infrastructure spending has the potential to play a critical role in supporting growth in the economy in 2013."

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