Construction output ends 2023 on downbeat note

A drop in new work and depressed infrastructure activity contributed to falling UK construction output in December last year, according to the latest official figures.

The sector contracted by 0.5 per cent in December compared with November, with a total value of £15.25bn, Office for National Statistics (ONS) data shows.

Growth of 0.4 per cent in repair and maintenance failed to offset a 6.4 per cent drop in infrastructure new work, which contributed to a 1.1 per cent decrease in overall new work in December.

Clive Docwra, managing director of property and construction consultancy McBains, said: “Today’s figures represent a serious blow for the construction industry, coming off the back of two previous months of falling output.”

He added: “It’s now crunch time for the sector with the UK economy entering recession in the final quarter of last year. In recent months a fall in new housebuilding has been a big factor in the decrease in growth, but today’s figures show new infrastructure work – which for a long while has propped up the sector – also drying up.”

In contrast, Kelly Boorman, partner and national head of construction at RSM UK, said: “The industry remains cautiously optimistic due to committed spend on infrastructure projects, with businesses also reporting that the pipeline has grown due to new projects being awarded”.

In quarterly terms, construction output fell by 1.3 per cent in October-December – equivalent to a £599m decrease in output – compared with Q3 last year. The ONS attributed this to a 5 per cent fall in new work.

However, repair and maintenance increased by 4 per cent compared with Q3.

In its statistics released today, the ONS said that “anecdotal evidence” suggests that adverse weather in Q4 was a contributing factor behind the overall decrease in output.

It added: “Evidence also suggests that these weather effects led to increases in repair work across the repair and maintenance sectors.”

Four out of the nine sectors assessed by the ONS experienced a decline in Q4 last year. Private-housing new work was the worst performer with a 1.2 per cent drop compared with Q3, followed by infrastructure (-1.2 per cent). New work in the private commercial and private industrial sectors fell away marginally, with decreases of 0.29 per cent and 0.02 per cent respectively.

The ONS also produced full-year statistics for the construction sector, showing that annual output grew by 2 per cent in 2023 – the third consecutive year of growth.

However, total new orders in Q4 decreased by 13.1 per cent (£1.36bn) compared with Q3.

The ONS said that the quarterly fall came mainly from the private commercial and industrial sectors, which decreased by 18.1 per cent (£542m) and 27.6 per cent (£320m) respectively.

Repair and maintenance performed better with growth of 11.3 per cent.

Mike Hedges, company operations director at Beard, said: “This is as much driven by the economic climate and tougher borrowing conditions as it is the shifting focus among a number of our customers to prioritise the improvement of existing building assets.

“While we have seen a number of positive indicators which has helped boost confidence, there’s no question inflation still remains a key barrier to growth.”

The latest figures show that construction inflation (“output price growth” in ONS terminology) grew by 3.1 per cent in 2023, reflecting a slower rate of price growth since the 10.7 per cent peak experienced in May and June 2022.

Despite this, Docwra said: “While interest rates remain high and the economic picture continues to be unpredictable, we expect the overall outlook for 2024 to be one of uncertainty.”