Photographer: Simon Dawson/Bloomberg

U.K. Construction Industry on Course for Quarterly Decline

  • Building output unexpectedly fell in August on infrastructure
  • Decline unlikely to reflect Brexit vote uncertainty, ONS says

U.K. construction output unexpectedly fell in August as infrastructure work shrank at the fastest pace in nine months, putting the building industry on course to contract in the third quarter.

Production declined 1.5 percent from July, the Office for National Statistics said on Friday. An unchanged reading was expected by economists in a Bloomberg survey. It left output down 1.3 percent in the latest three months, the biggest drop since last October.

Almost every category of building work fell in August, with infrastructure dropping 5.1 percent -- enough to account for almost half the overall decline. The ONS said the fact that infrastructure is dominated by public-sector work means it is “unlikely” that uncertainty following the June Brexit vote is having an impact.

Still, construction appears set to shrink for a second straight quarter, despite an upward to revision to July. Output will fall unless September sees an unprecedented gain of 5.2 percent. 

Survey data provide a ray of hope, suggesting conditions may have stabilized in September, but it’s clear that the sector remains under pressure from widespread uncertainty about the economic outlook and that growth has, at the very least, consequently slowed considerably since earlier in the year,” said Chris Williamson, an economist at IHS Markit.

Relying on Services

With industrial production also set to decline, it leaves the task of keeping the economy growing to the services sector. The first estimate of GDP for the quarter will be published Oct. 27, with economists expecting a sharp slowdown from the second quarter’s 0.7 percent growth.

New construction work fell by 1.4 percent in August and repairs and maintenance dropped 1.5 percent. Besides infrastructure, the weakest areas were public housing and private industrial work.

Economists have warned that the building industry may ultimately be hit hard as the decision to leave the European Union leads to projects being put on hold and accelerating inflation erodes consumer spending.

Despite the spur to exports from a more competitive pound, economic growth is widely expected to slow to less than 1 percent next year.

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