The construction industry is officially experiencing a “technical recession” after two successive quarters of negative growth, confirmed by the latest ONS statistics on GDP released on Tuesday.
The update showed that although construction output in March 2015 was 5.3% higher than in February, the increase was not large enough to cancel out the effect of output declines in October, November, January and February (December bucked the trend with a 0.6% output increase compared to November).
According to the ONS – which is basing its calculations on preliminary figures which are often subsequently revised – this meant there was an overall decline in construction output of -1.6% in Q1, a statistic that helped slow overall GDP growth to just 0.3%.
The revised figures for construction output in Q1 are due to be published on 15 May.
In a blog on the BBC website, BBC economics correspondent Robert Peston wrote: “[0.3%] was half the growth rate we enjoyed in the last three months of 2014 and the slowest rate of growth since the end of 2012. What’s going on? For reasons no one can quite explain, construction in Britain has been lousy for six months.”
"The news that GDP growth has slowed in Q1 is not as damaging the headlines suggest and is far from a red alert for business. With all political parties placing infrastructure and housing at the centre of their manifestos, it is highly likely that we will see a post-election bounce."
Mark Robinson, group chief executive, Scape Group
As Peston says, the figures are puzzling – given the general feeling of recovery, reports of clients facing a dearth of bidders, and predictions of healthy output growth from the CPA and Markit.
Brian Green, economist and blogger at Brickonomics, pointed to possible anomalies in the ONS data, for instance some of the work attributed to March could have taken place in earlier months.
He added: “Most people are fairly convinced the sector is going up, so it might be that the data is correct in itself but missing certain chunks, which are being counted as value-added in other sectors.” Examples could be offsite construction or work taken in-house by clients.
And Mark Robinson, group chief executive of Scape Group, said that construction’s contribution to the slowdown in GDP growth shouldn’t ring alarm bells, citing analysis it commissioned in March which showed that, historically, construction output rebounds after an election.
“The news that GDP growth has slowed in Q1 is not as damaging the headlines suggest and is far from a red alert for business,” said Robinson. “Construction has been painted as one of a clutch of rotten eggs, contributing to this pre-election economic gloom, but the devil is in the detail and we need to look at these figures in context.
“Our analysis of historic ONS data shows that in all previous election years since 1955 construction output does reduce in the run up to elections, but then ramps up in the ballot aftermath, rising by an additional 2% on average.
“With all political parties placing infrastructure and housing at the centre of their manifestos, it is highly likely that we will see the same post-election bounce this year. So rather than heading for panic stations, we should head for the polling stations with the confidence that the economic recovery is still on track.”
