'Fragile recovery' for construction as activity slows in January

Activity in UK construction slowed in January with the fall in output evidence of the sector's "fragile recovery", says Michael Thirkettle, chief executive of McBains Cooper.

The latest Office for National Statistic (ONS) figures show construction fell by 0.4 per cent in the first month of 2017 compared with December 2016 but rose by 2.0 per cent year-on-year.

The negative month-on-month growth was driven mainly by a 1.3 per cent fall in repair and maintenance, with the housing sector as a whole the most notable downward pressure on growth, with both public and private housing falling month-on-month in January.

But despite falling for the 13th consecutive month, infrastructure rose for the third month in a row - up 3.5 per cent, while new work showed signs of flattening out with growth of 0.1 per cent in January.

“Today’s figures show a real recovery for construction is fragile at best," says Thirkettle.

"In a week where the Spring Budget brought news of national insurance rises and loss of tax relief on dividend payments to hit the self-employed in particular, which includes 167,000 construction workers – people who are vital for ensuring the government’s housebuilding targets are met.

“In the short to medium term, worries over Brexit remain a constant. We stand to lose a significant number of the 12 per cent of UK construction workers who come from EU countries as a result of Brexit, which means we will be in a parlous situation.

"Building new homes to meet the government’s targets for solving the housing crisis are already significantly behind and the recent Housing White Paper really didn’t do enough to make planning processes simpler or free up more land."

Following an increase in activity in last year's Q4, the overall fall in construction output in the opening month of 2017 is "disappointing", said Rebecca Larkin, senior economist at the Construction Products Association (CPA).

“Furthermore, the construction new orders data from the ONS suggests that there may be continued weakness in activity in some sectors during 2017.

Commercial new orders tailed off in the second half of 2016 and in Q4 were 10.6 per cent lower than in Q3 and fell 24.1 per cent from a year ago, and new orders in the industrial sector were the lowest in two years. Building work in both sectors requires a large up-front investment for a long-term rate of return and it appears decision-making has been clouded by a rise in economic uncertainty.

“Taking total new orders growth of 2.9 per cent in 2016 as a whole, however, shows there remains an impetus for construction activity over the next 12 months.

"As echoed in our forecasts, output during 2017 will be driven by higher orders for housing – both private and public – as well as infrastructure and new public sector buildings such as schools and hospitals.”

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