There was a surprise slowdown in Britain’s construction industry in August, although statisticians played down any link between the dip and Brexit jitters.
The Office for National Statistics said construction output had fallen by 1.5% in August, after a rise of 0.5% in July. That defied expectations of a small increase of 0.2% in a Reuters poll of economists and will add to fears the sector acted as a drag on overall economic growth in the third quarter.
The ONS cautioned that monthly data could be choppy and noted that the drop in construction in August had been driven by a 5.1% fall in infrastructure output. That subsector of the construction industry covers big projects such as windfarms, roads, railways and nuclear plants and its output data can be volatile. Infrastructure output rose by 6.1% in July.
“Construction output has fallen back quite sharply in recent months and contracted by 1.5% in August. As the fall this month is led by infrastructure, it seems unlikely that post-referendum uncertainties are having an impact,” said the ONS’s senior statistician, Kate Davies. “Monthly construction data can be quite erratic, so we would warn against trying to read too much into one set of figures.”
Looking at the underlying pattern of construction, which makes up 6% of the economy, output decreased by 1.3% in the three months to August from the previous quarter. In year-on-year terms, August’s output was up just 0.2%.
Survey responses from construction firms in September pointed to conditions in the industry stabilising but it still looked vulnerable, said Chris Williamson, chief business economist at IHS Markit, which publishes polls on the industry. Its latest report on construction suggested the sector bounced back from a post-referendum slump last month after a surge in housebuilding.
Williamson said: “UK construction activity fell sharply in August, putting the sector on course for its worst quarter in four years and at risk of heading back into recession.
“Survey data provides a ray of hope, suggesting conditions may have stabilised 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.”
There are hopes that measures in Philip Hammond’s autumn statement next month, such as a possible push on housebuilding, could bolster the construction sector.
But Scott Bowman, UK economist at the consultancy Capital Economics, said the environment was generally tough for construction firms. “Construction’s fortunes are unlikely to improve much in coming quarters as the Brexit vote weighs on the sector,” he said.
“We do think the leave vote will have more of an impact on the sector in the coming quarters – due to the large-scale, irreversible nature of many projects. What’s more, recent reports suggest that the labour shortages that have been weighing on the sector are still firmly in place.”
The figures follow news last week of a fall in industrial output in August and a widening in Britain’s trade deficit with the rest of the world. That data broke a run of upbeat reports on the UK’s post-referendum economy.
The mixed outlook, and the pound’s dramatic slump on worries over a potentially damaging hard Brexit deal, leave the Bank of England in a difficult position as it decides whether to cut interest rates further next month.
Official borrowing costs were trimmed to a record low of 0.25% in August and policymakers have hinted they could be cut further, to about 0.1%, before the end of the year.
