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Construction output suffers longest decline in five years

Construction output declined for a third consecutive quarter at the end of 2017 – the longest sustained fall since 2012.

Output fell 0.7 per cent in the final quarter of the year, although the value of work increased slightly in December, according to the latest data from the Office for National Statistics.

Repair and maintenance, which accounts for a third of total activity, was chiefly responsible for the overall fall in output during the fourth quarter.

R&M declined by 2 per cent in Q4 compared with Q3, whereas new work output remained broadly flat.

Naismiths managing director Blane Perrotton said: “Britain’s construction industry ended 2017 with a whimper rather than a bang.

“Despite a surprise uptick of activity in December, the final quarter of the year saw the slowdown spread across the industry.”

Q4 saw a steep decline in private commercial work, which dropped 4.4 per cent quarter on quarter – the worst-performing sector over the period.

New private housebuilding recorded a strong end to the year however, with output up 5 per cent – the largest increase since Q1 2016.

Infrastructure output also edged up in the final quarter of the year, increasing 0.7 per cent.

Mr Perrotton said: “Housebuilders provided the one bright spot for a sector that has been grappling with a crisis of confidence amid investors’ concerns about the future of the economy.

“Several large commercial and infrastructure projects that were completed in the first half of 2017 were not replaced by new projects, triggering a gradual loss of momentum in the second half of the year.”

Construction Products Association senior economist Rebecca Larkin suggested the drop in repair and maintenance work could signal a weakening of consumer confidence.

She said: “It is telling that the slowdown in private housing RM&I, although from a high base, has occurred at the same time as a fall in real wages.

“This tends to constrain big-ticket purchases, and home improvements is emerging as one area where households are starting to rein in spending.”

PMI data for January released last week showed activity had fallen at the start of 2018, and Mr Perrotton pointed to the risk that interest rates could dampen growth.

He said: “Brexit uncertainty continues to weigh on the sector, but there’s now a new joker in the pack – interest rates.

“With the Bank of England signalling that rates will rise sooner and quicker than previously expected, there’s a risk the residential success story could be derailed.”

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