Construction output growth eased to 0.7% in October 2014 on the same period a year ago, its slowest pace since June 2013, according to a report published today (12 December) by the Office for National Statistics.
On a month-by-month basis, construction output contracted by 2.2% in October compared with September. New orders for Q3 2014 grew by 3.2% on the same period a year ago and a range of external indicators show that output growth remains strong.
On an annual basis, the main categories of construction output showed divergent trends. Overall growth was driven by new work, which rose by 1.4%. Within new work, the strongest component was housing (public and private), which increased by around 18%. In contrast, repair & maintenance work contracted, led by a fall of 2.1% in housing.
On a monthly basis, the reduction in construction output was more uniform. New work and repair & maintenance both contracted. New work fell by 1.7% due to declines in private sector components.
Repair & maintenance output fell by 3.1% as all components contracted. The only sub-category of construction output that saw an increase was public new work (excluding infrastructure), which was up marginally.
New orders for construction grew by 3.2% on the same period a year ago in Q3 2014, and by 5.2% on the previous quarter to reach their highest level since Q2 2013. New orders were driven by private housing and private commercial orders, which rose by around 14% and 45% respectively on an annual basis. The strength of new orders for private housing is consistent with the number of housing starts, which has remained firm in recent periods.
A number of external indicators show that the construction industry continues to grow although demand for housing may be easing. The Bank of England’s Agents' Summary of Business Conditions for October 2014 noted that an increasing number of commercial projects were supporting housebuilding. In addition, the Bank of England’s Inflation Report, November 2014 indicated that housing market activity and housing investment may have been supported by greater household optimism and easier credit conditions. This is evidenced by the ONS House Price Index, which showed that annual UK house price inflation increased to 12.1% in the year to September 2014.
The Agents’ Summary also highlighted that demand for housing had softened to become more aligned with supply, leading to less upward pressure on house prices. This was reflected in the Bank of England’s Credit Conditions' Survey for Q3 2014, which reported that demand for residential mortgages had fallen significantly in the quarter. But, despite these developments, housebuilders were yet to scale back activity.