UK Construction Output Falls for Fourth Straight Month

By Grace Kim

UK construction output fell 0.2% in August, its fourth consecutive monthly decline, as a deepening housebuilding slump keeps the industry stuck in reverse.

The picture is worse than previously reported. The Office for National Statistics' initial reading of a 0.1% rise in July has been revised to a 0.5% fall, and June's decline deepened from 0.1% to 0.3%. In effect, the brief recovery that statisticians had logged for the summer never happened.

Construction is now trailing the wider UK economy, which edged up 0.1% in August.

Over the three months to August, construction output fell 1%, the second consecutive decline in that rolling measure. Private housebuilding was the biggest drag, shrinking 3.2% over the period and 1.9% in August alone.

New work fell 1.4% across the three months, while repair and maintenance slipped 0.3%. Five of the nine tracked sectors recorded falls. August's monthly decline came entirely from new work, which dropped 0.7%; repair and maintenance offered some respite with growth of 0.4%.

Why is the sector stalling?

Industry analysts point to financing costs and planning delays as the twin brakes on activity.

Jo Streeten, managing director, buildings & places at AECOM, said: "Another fall in output underlines just how fragile conditions remain in the sector."

"Higher financing costs and uncertainty over future demand continue to hold back client decisions, leaving too many projects struggling to move from planning to delivery," she said.

Richard Cook, senior director of economics at planning and development consultant Pegasus Group, pointed to the planning system itself. "Development costs are deterring investment and ambition within the construction sector. Even hugely beneficial schemes, particularly in the capital, are falling foul of planning decisions," he said.

Clive Docwra, managing director of property and construction consultancy McBains, said high borrowing costs continued to weigh on housebuilding, with geopolitical tensions adding pressure on inputs.

"Ongoing geopolitical tensions, which continue to push up energy and materials costs in particular, are also causing investors to take pause on some projects," he said.

What does this change for firms watching the Budget?

Not much, according to Streeten — and that's the warning. She cautioned against pinning hopes on a spending boost at the end of the month.

"With pressure on the public finances limiting the scope for major new spending commitments, the industry shouldn't expect the upcoming Budget to deliver a silver bullet," she said.

"Much of the government's infrastructure investment is already in the pipeline, so the focus must now be on delivery."

Docwra sees one possible lever. The government has recently announced a scheme to help first-time buyers, and he said "the industry will be hoping for more incentives in the upcoming Budget to stimulate the market among other buyers too."

For now, with four months of decline on the board and revisions pointing downward, the sector's near-term prospects rest less on new announcements than on getting already-approved projects out of planning and onto sites.