Construction Output Slows for Another Month

Construction Output in the UK has fallen once again for another consecutive month. Monthly construction output fell to 0.2% in August 2021, this means that output is now 1.5% below that of its pre-pandemic February 2020 level.

New work also remained flat at just 0.6% this month, with repair and maintenance also falling (0.6%). Anecdotal evidence from businesses suggests that product shortages that have been caused by supply chain issues, as well as subsequent price rises were the main reasons for the decline.

In August 2021, the level of construction output was 1.5% below February 2020 pre-COVID level. New work was 3.7% below the February 2020 level, however, in contrast repair and maintenance work was 2.7% above the February 2020 level.

As well as the monthly fall in August 20201, construction output fell by 1.2% in the three months leading to August 2021, the first three monthly fall since July 2020 and driven by a fall in repair and maintenance of 4.7%.

However, since the beginning of the Coronavirus pandemic, the recovery to date has been somewhat mixed at a sector level, shown with infrastructure 45.5% above and private commercial 26.3% below their respective pre-pandemic February 2020 levels in August 2021.

Brian Berry, Chief Executive of the FMB said: “The continued fall in construction output this month, at 0.2%, signals construction’s recovery from the pandemic to be at risk. Activity within the sector has been hampered by severe material and skills shortages, which are delaying and preventing work. These effects have been particularly hard felt by the repair, maintenance and improvement sector, the backbone of the industry, where output has fallen 4.7% over the last three months. The Government should use the upcoming Budget to introduce a national skills strategy, that ringfences the necessary funding for future skills, enables greater numbers of builders to train, and also allows for sufficient HGV drivers to maintain robust supply chains.”

Fraser Johns, finance director at Beard, said: “With the reduction in output in August marking the first quarterly decline since July 2020, this is clearly not just a minor blip, and marks a real challenge for the construction industry to overcome.

“A lot has been made of the supply chain issues and subsequent price rises and rightly so. Client confidence has certainly been impacted, with inflationary price pressures and supply shortages at the root of hesitancy to green light projects in the current environment.

“After the sharp recovery in the past year, the industry needs to pull together to ensure this doesn’t become a long-term decline.  To overcome it, contractors must be proactive, and regular collaboration with suppliers is fundamental to all projects.

“Multi-step procurement processes may become the norm, and this should help absorb the extended lead-in times for certain materials and mitigate the risk of disruption to projects on the ground.

“Even with these precautions in place, it looks like the road to recovery will be a difficult one until the industry can solve the shortages issue.”

Gareth Belsham, director of the national property consultancy and surveyors Naismiths, commented: “The slowdown has turned into a slide.

“The construction industry is officially contracting again. On a quarterly basis, output is down by 1.2%, the first such fall since the dark days of mid-2020.

“This is the clearest sign yet that construction’s chronic supply problems aren’t just speed bumps – in many cases they’re proving to be insurmountable obstacles that are forcing projects to slam on the brakes.

“The ONS data reveals that in August, 36% of builders had to change suppliers, or were unable to source the materials, goods or services they need from within the UK.

“This is far higher than the proportion of businesses in other industries reporting similar problems, suggesting that construction has been hit harder than most by the perfect storm of staff and material shortages.

“The slowdown is particularly alarming in private housebuilding, which was a star performer during the boom months of the first half of 2021, but saw levels of new work shrink by 7.5% in July and managed growth of only 1% in August.

“While sentiment across the industry remains broadly upbeat, the supply chain problems are inexorably stifling growth. With this latest fall in output, the industry has shrunk to nearly a quarter of a billion Pounds less than its pre-pandemic size.

“This data, which was recorded before September’s fuel crisis, could also be a sign of worse to come. Last month the lack of drivers, and a lack of fuel, brought many supply chains to a near standstill.

“Construction has weathered far worse than this, but where you have contractors having to turn work away because they simply can’t deliver projects through a lack of people and materials, things are far more serious than teething problems.”

Walid Koudmani, market analyst at financial brokerage XTB comments: “Monthly construction output fell a further 0.2% in August with the level of output now reaching 1.5% below its pre-pandemic level. Meanwhile, new work remained flat this month with repair and maintenance falling slightly. Today’s data further illustrates the current challenges faced by the economy, with factors like supply chain issues, labour shortages and rising fuel prices continuing to hold back the post pandemic recovery heading into the final quarter.”

Commenting on the latest construction industry output update from the ONS, Stuart Law, CEO of the Assetz group, said: “While overall construction output fell by 0.2% in August, the private housebuilding sector has seen a particular drop in new work with a decrease of 6.6% over the last three months. With the ongoing impact of post-Brexit trade and shortages of raw materials and labour now combined with a nationwide energy crisis, housebuilders are facing a challenging set of market conditions, and this is likely to lead to further house price increases at a time of such substantial demand to move home.”

“However, the current environment does present some opportunities for forward-thinking developers. With the price of energy set to soar for consumers over the winter and beyond, the need for more energy-efficient homes has never been more clear or urgent. As prices rise, energy efficiency will become a much more prevalent concern for homeowners, creating opportunities for specialist, SME housebuilders who are leading the way in terms of innovative, factory-built eco homes. As demand for these types of homes increases, they will make an even more meaningful contribution to the national construction output.”

“While we’ve continued to see robust appetite from such housebuilders looking to meet the nation’s rapidly changing housing needs – receiving hundreds of millions of pounds worth of loan applications to fund projects over the last few months – now more than ever they will need broader Government and industry support if they are to deliver what is needed of them at speed. Key to this is how projects can be financed in a challenging market, without the support of traditional lenders.”

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