15th December 2016

Commercial storms brew

Storm clouds are gathering on the horizon with infrastructure and other sectors facing challenges.

The construction industry continues to be robust in the wake of the various economic shocks that occurred in the second half of the year. An industry that tends to be pro-cyclical and behaves in a similar manner to the wider economy remains stoically resilient.

The latest figures from the Office for National Statistics show that, while construction output fell by 0.7% in October from September, the industry grew by 0.7% compared with October 2015. Comparing the last three months with the same three months a year earlier also shows the industry is performing well, with an output increase of 1.7% across all areas of work.

As I have mentioned many times, it is the continued activity of housebuilders that underpins the strong conditions in the construction industry overall. In keeping with that sentiment, new private housing output was 13.9% higher in the three months to October 2016 than in the same three months in 2015. This shows just how strong demand is for new housing within the UK; this should be no surprise given the country is in the midst of a “housing crisis” that is finally nearer the top of the government’s agenda. It is amazing to consider that, even with this type of growth, the UK is still building around 50,000 fewer new homes per year than experts estimate are needed to keep pace with population change.

However, some storm clouds are gathering on the horizon. Infrastructure is still struggling, with output levels 11% lower in the three months to October than in the same period in 2015, hence why the chancellor prioritised spending increases in the Autumn Statement. In addition, the private commercial sector, while posting strong output figures, faces challenges. Output was 9% higher in the three months to October 2016 from October 2015 which is good news. However, property agents have been reporting dampening investor sentiment and, with new orders down almost 10% in Q3 compared with Q2, the problems are clear. As the area of construction most exposed to Brexit, it is a portent of what is anticipated in 2017 as the changing economic conditions begin to make an impact.

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