Construction down in Q3 due to mounting uncertainty
The construction sector has suffered its worst quarter in four years, following the vote to leave the EU, and, in a blow to government hopes for a better housing supply, homebuilding has stalled. Figures from the Office for National Statistics shows that output in the construction sector, which accounts for 6% of the UK economy slipped by 1.1% in Q2 of 2016, echoing reports from builders after the Brexit vote that economic uncertainty was impacting on orders. Philip Hammond is expected to use his Autumn Statement to set out measures to increase housing supply.
Official data echoes reports from builders of growing economic uncertainty following vote to leave the EU

The data makes disappointing reading for the government as it bids to address a chronic housing shortage. Photograph: Rui Vieira/PA

The construction sector suffered its worst quarter for four years following the vote to leave the EU and, in a blow to government hopes for better housing supply, homebuilding stalled.

Official figures showed output in the construction sector, which accounts for 6% of the UK economy, slipped by 1.1% in the July to September quarter from the previous quarter. That echoed reports from builders after the Brexit vote that economic uncertainty was hitting their order books.

But the figures from the Office for National Statistics on Friday were slightly better than its earlier estimate that construction output had fallen 1.4% in the quarter.

1.1% fall in construction in Q3, slightly smaller than the 1.4% fall estimated in preliminary #GDP https://t.co/qV2VTQy5Sn — ONS (@ONS) November 11, 2016

Figures for September alone showed a small month-on-month rise in output of 0.3%, beating forecasts for a 0.2% dip in a Reuters poll of economists.

The details of the latest report will make disappointing reading for the government as it bids to get housebuilding going to address a chronic shortage of housing in the UK. The chancellor, Philip Hammond, is expected to use his autumn statement on 23 November to set out measures to increase housing supply.



The ONS said total new housing recorded no growth in the third quarter, following a small dip the previous quarter.

“Given the UK’s acute housing shortage, the government will be disappointed to see that new house building was only flat quarter-on-quarter in the third quarter,” said Howard Archer, economist at the consultancy IHS Global Insight.

New housing output. Chained volume measure, seasonally adjusted. Illustration: Office for National Statistics

But housebuilder Redrow noted that housing was still up 8.7% when compared with the same period in 2015 as private new housing increased by 10.8% but public new housing – a much smaller part of the sector – fell 3.1%.

John Tutte, chief executive officer at Redrow, said the year-on-year figures painted a “much-improving picture for housing over the last year”.

“This trend chimes with our own recent positive figures which revealed that last year we increased completions on homes by 17%, with our forward order book at record levels,” said Tutte.

“Demand for homes is still incredibly high, a trend even Brexit has failed to dampen in our recent experience, and we have geared up our business for growth in response.”

Hammond is also expected to announce more spending on infrastructure as he pares back the previous chancellor George Osborne’s austerity drive and looks for ways to shore up economic activity as the UK starts negotiations to leave the EU.

The latest ONS figures on infrastructure, which includes projects such as road building and railways, showed output increased by 1.2% in July to September. That was the first quarter-on-quarter increase in infrastructure for more than a year. But compared with the same period a year ago there was a fall of 7.7% in output.



Commenting on the first full quarter of construction data since the referendum, ONS statistician Kate Davies said small rises in infrastructure and public building work had been offset by large falls in repair and maintenance work, down 3.4% on the quarter. “Construction output has remained broadly flat in the last year, both before and after the recent referendum,” she said.

The construction sector is still recovering from a deep recession prompted by the global financial crisis. Economists expect the Brexit vote and protracted process of leaving the EU will weigh it down further.

Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics, said: “The downturn in construction output in the third quarter is shallower than the ONS initially estimated, but the sector still faces severe challenges ahead.

“The construction sector’s outlook will brighten if the chancellor cancels planned cuts to public sector investment in the autumn statement later this month. But unlike other indicators, firms’ investment intentions have not recovered since the Brexit vote, so commercial construction still looks set to weaken.

“Meanwhile, demand for new homes likely will deteriorate next year as households’ real incomes are squeezed by high inflation and as lenders reflect the recent sharp rise in funding costs in mortgage rates.”

Kay Daniel Neufeld, economist at the consultancy Cebr, said that aside from Brexit uncertainty the sector faces various other challenges, including regulatory hurdles and skills shortages.

Looking ahead to the UK outside the EU, he added: “Stricter immigration controls would further exacerbate the problem for the UK construction sector.”