Construction output could begin to grow in the third quarter
(03/11/2009)

According to recent ONS data on new construction orders, orders in the three months to July 2009 rose by 2 per cent compared with the previous three month period. Orders in the 12 months to July 2009 fell 24 per cent compared with the previous 12 months but orders in the three months to July 2009 fell by 10 per cent compared with the same period a year earlier.

Commenting on the data, RICS Chief economist Simon Rubinsohn says: "Construction orders rebounded strongly in July, increasing by 40% from the very weak June figures. The contribution from public sector accounted for most of this improvement, with the advancing of capital spending programmes by the government begining to pay dividends - in particular, new infrastructure orders doubled between June and July. These figures suggest that construction output could actually begin to grow in the third quarter after dropping around 15% from its peak. However, with public spending set to be scaled back whoever wins the next election and development finance still hard to come by , any recovery in the construction sector is going to be very gradual."

Commenting on the ONS Construction Output data for Q2 2009 Simon Rubinsohn added: "Construction output in the second quarter fell by less than had been provisionally estimated in GDP data. The 0.5 percent drop follows the 8 percent decline in the first three months of the year. As a result of this, the peak to trough decline in construction output currently stands at 15.7 percent. While it would be misguided to interpret the latest data as signalling that the pain is over in the construction sector, the worst of the adjustment does now appear to lie in the past and the more probable scenario going forward is one of a very gradual recovery against a backdrop of a continued shortfall of development finance.

"Significantly, the volume of new work actually picked up in the second quarter led by a sharp increase in the contribution from the public sector. Public housing rose modestly but the biggest gain was in the non-housing area which jumped a hefty 12 percent. This sector is the principal beneficiary of both the Olympics project and the restart of the school building programme. Private house building was broadly flat with the real weakness in both private commercial and industrial construction. Repair and maintenance work edged lower for the fifth consecutive quarter."