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Output hits six-year low as new orders slump

Output growth in the construction industry dropped at the fastest rate in almost six years according to ONS data for April.

On a rolling three-month on three-month basis, output fell 3.4 per cent, which was the steepest decline since August 2012.

Every sector bar one saw new work output fall, with the biggest declines in infrastructure and public non-housing output, which dropped 8 per cent and 7.2 per cent respectively.

Private industrial output was the one bright spot with output up 2.7 per cent.

New order data for the first three months of 2018 released today also disappointed, showing a 6.6 per cent fall compared with the same time last year.

Blane Perrotton, managing director of surveying and consultancy firm Naismiths, said weak new order numbers suggest contractors could face a more challenging period in the coming months.

“With workers’ rising wages slicing into contractors’ already tight margins, there is likely to be more pain to come for contractors who are forced to bid low for work,” he said.

“While deals continue to be done, a sizeable chunk of the projects that could be done are being deferred until after the Brexit fog passes.”

Disappointing construction output in the first three months of the year was partially attributed to Carillion’s collapse and bad weather.

New work output rebounded 0.7 per cent in April compared to March, but was 3.3 per cent lower than April 2017 representing a £430m contraction in the sector according to CPA senior economist Rebecca Larkin.

“The 0.5 per cent rise in April reflects an element of catch-up after the combination of Carillion’s liquidation and the bad weather in February and March,” she said.

“This seems like a false positive, however, as output remained weak compared to April last year, with the 3.3 per cent fall equivalent to a £430 million reduction in construction work.”

Ms Larkin added that the fall new orders in the first quarter was unlikely to be weather related and “confirmed an underlying weakness” in the construction industry.

Mr Perrotton continued: “Last month’s GDP report awarded construction the wooden spoon for being the worst performing sector of the economy, and today’s disappointing numbers from the ONS drive home the seriousness of the industry’s weakening confidence and softening investor demand.”

Scape chief executive said the government had to shoulder some of the blame for the industry’s recent poor performance.

“Sadly, the government’s failure to provide clarity on its Brexit policy is damaging both the construction industry and the wider economy,” he said.

“The need for investment is clear, however, particularly in housing, infrastructure and the NHS, and there is an opportunity for the government to push ahead with big projects to provide an economic boost that will support SMEs and supply chains in a time of relative uncertainty.”

Today’s weak output and order data contrasts with last month’s PMI survey that reported contractor confidence was at an 11-month high.

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