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Construction downturn softens as UK pulls out of recession

Official estimates show the construction industry shrank by 2.5 per cent in the past three months, compared with 3 per cent in the previous quarter.

The new figures mean construction output was 10.8 per cent lower in Q3 against a year earlier. Across the economy as a whole, the figures have been flat over the past year.

Civil Engineering Contractors Association director of external affairs Alasdair Reisner welcomed the marginal improvement, but warned that falling output “should give the government grave cause for concern”.

The UK economy overall grew by 1.0 per cent in Q3 on the back of an Olympic boost and an additional day of holiday in June due to the Diamond Jubilee, which had a negative impact on the previous quarter’s figures.

The Olympic effect included ticket sales, which were allocated to the quarter and were estimated to represent about 0.2 per cent of the 1.0 per cent GDP growth, as well as potentially increased employment, transport and creative services output.

“Lack of funding for projects is a large contributor to the fall in construction output, along with the lack of any concrete way forward yet for PFI”

Pinsent Masons global business consultant Graham Robinson

The largest single boost came from the service sector, which increased by 1.3 per cent after a contraction of 0.1 per cent between Q1 and Q2.

Production industries also grew, increasing by 1.1 per cent after a modest fall in the previous set of figures.

PwC construction leader Jonathan Hook said the construction decline was “disappointing but not unexpected.”

“The industry is feeling the impact of cuts to the government’s capital programme,” he added.

“Government has got the message about stimulating projects and the potential impact on economic growth, and there are also increasingly positive signs from the private sector, but in my view it will probably be a year before the sector starts to see growth again.”

Mr Reisner suggested the figures masked an underlying fragility in construction.

He said: “The whole of the UK has been waiting for the country to emerge from the double-dip recession.

“As such, today’s news is welcome as it indicates a return to much-needed growth.”

“Yet it is clear that the construction sector has declined even further in the last quarter.

“Given the importance of the industry to the UK economy – delivering projects that support growth in other sectors, as well as employment for millions of UK workers – it is vital that steps are taken to rebuild UK construction.

“The plummeting output for the sector should give the government grave cause for concern. Any continuation of these declines runs the risk of dragging the UK into a triple-dip recession.”

“We need swift action to unlock the potential of the construction industry, so that it can play its role in the sustained recovery of the UK economy.”

Pinsent Masons global business consultant Graham Robinson told CN the construction industry would continue to be challenged by difficulties in Europe and public sector cuts, warning that infrastructure cuts had reduced output in that sector by 25 per cent year on year.

“The construction sector faces stronger headwinds from the eurozone, where a deeper crisis is also affecting construction, and increasing competition,” he said.

“The lack of funding for projects is a large contributor to fall in construction output, along with the lack of any concrete way forward yet for PFI/PPP in the UK, which has almost dried up.”

“With business investment and capital expenditure tightening next year, the outlook for construction means that a recovery for construction certainly won’t happen until probably well into 2013, with the industry still shrinking overall during 2013.

“Output for the sector is unlikely to gain strength and momentum for another 12 months.”

Quarterly construction growth:

2011 Q32011 Q42012 Q12012 Q22012 Q3
-0.50.25.9-3.0-2.5

Year-on-year construction growth:

20072008200920102011
2.1-2.7-13.57.92.6

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