Construction output in Great Britain: July 2016 and New Orders Quarter 2 (Apr to June) 2016

The reporting period for this release covers the calendar month of July 2016 and therefore includes data for the month following the EU referendum. Construction output was flat in July 2016 and there is very little anecdotal evidence at present to suggest that the referendum has had an impact on output. You should note that we always warn against overly interpreting one month’s figures.

In July 2016, construction output was estimated to have shown no growth compared with June 2016.

All new work increased by 0.5% while all repair and maintenance decreased by 1.1%.

Compared with July 2015, construction output decreased by 1.5%. All new work, and repair and maintenance decreased by 0.6% and 3.2% respectively.

The underlying pattern as suggested by the 3 month on 3 month movement in output in the construction industry decreased by 1.2%.

New orders for the construction industry in Quarter 2 (Apr to June) 2016 were estimated to have increased by 8.6% compared with Quarter 1 (Jan to Mar) 2016 and increased by 7.5% compared with Quarter 2 2015. New housing increased by 25.0% while there was a fall of 17.4% in infrastructure.

There was an upwards revision of 0.6 percentage points to construction output in Quarter 2 2016 to -0.1%, this has no impact on GDP to 1 decimal place.

From January 2017 we are improving the way we publish economic statistics, with related data grouped together under new "theme" days. This will increase the coherence of our data releases and involve minor changes to the timing of certain publications. For more information see Changes to publication schedule for economic statistics.

The second estimate of UK gross domestic product (GDP) for Quarter 2 (Apr to June) 2016 published on 26 August 2016 included an estimate of construction which showed a decrease in output of 0.7% in Quarter 2 2016. This estimate has been revised upwards by 0.6 percentage points to a decrease of 0.1% in this release. This has no impact on GDP to 1 decimal place. More information on revisions are included in the background notes section of this bulletin.

The release for July and New Orders Quarter 2 2016 has a revision period back to Quarter 1 (Jan to Mar) 2015. Revisions in this release were caused by the annual seasonal adjustment review and the incorporation of late data. More information on revisions can be found in the background notes.

Output is defined as the amount charged by construction companies to customers for the value of work (produced during the reporting period) excluding VAT and payments to sub-contractors.

Construction output estimates are a short-term indicator of construction output by private sector and public corporations within Great Britain. Output estimates are produced and published at current prices (including inflationary price effects) and at chained volume estimates (with inflationary effects removed) both seasonally adjusted and non-seasonally adjusted.

Chained volume measures are also described as volume. Construction output is used in the compilation of the output approach to measuring gross domestic product (GDP).

Detailed estimates along with a longer run of time series data are available to download in the Output in the Construction Industry, July 2016 datasets. In these tables, you will find chained volume estimates back to Quarter 1 (Jan to Mar) 1997 and monthly estimates back to January 2010. Current price non-seasonally adjusted data are available back to Quarter 1 1955. More information on these statistics can be found in the “definitions and explanations” section in the background notes.

The data published in this release cover construction estimates for Great Britain. Construction output estimates for Northern Ireland can be obtained from the Department for the Economy website.

National Statistics status

On 11 December 2014 the UK Statistics Authority announced its decision to suspend the designation of Construction Output and New Orders as National Statistics due to concerns about the quality of the Construction Price and Cost Indices used to remove the effects of inflation from the statistics.

We took responsibility for the publication of the Construction Price and Cost indices from the former Department of Business Innovation and Skills on 1 April 2015, introducing an interim solution for measuring output prices in June 2015 for all periods from January 2014 onwards. We are currently developing a long-term solution for the deflation of construction statistics.

In July 2016:

• all work showed no growth compared with June 2016

• all work decreased by 1.5% compared with July 2015

• in the 3 months (May 2016, June 2016 and July 2016) compared with the previous 3 months (February 2016, March 2016 and April 2016) all work decreased by 1.2%

Monthly construction output was first collected in January 2010. Figure 1 shows the monthly path for all work is volatile and is dominated by new construction work output. Despite an initial rise in 2010, all work remained at a consistent level to late 2011, when it started to fall.

Output increased steadily in 2013 and 2014, both new work, and repair and maintenance contributing towards the overall growth; however, towards mid-2014, new work continued to increase while repair and maintenance slowly decreased. From late 2014 onwards, the overall picture is relatively flat as a result of new work increasing at a slower pace and becoming almost flat and the slow contraction in repair and maintenance.

Figure 2 looks at the main components of all new work. There was sustained growth in all new housing from early 2013 to late 2014 and after several months of contraction there was a return to growth in late 2015. There was a slight fall of 0.8% in July 2016 compared with June 2016, however, year-on-year growth remained strong with an increase of 5.6%.

Infrastructure reported an increase of 3.9% in July 2016 compared with June 2016 and a fall of 9.6% compared with July 2015. Infrastructure is a particularly volatile series due to the range of products that are included within this type of work; large movements are therefore not unusual.

Since early 2012, other new work has remained fairly flat. There was no growth in July 2016 compared with June 2016 and a small fall of 0.4% compared with July 2015.

Figure 3 looks at the 2 main components of all repair and maintenance. In the early part of the time series, housing repair and maintenance performed at a higher level than non-housing repair and maintenance. For a number of years the level of both housing and non-housing repair and maintenance performed at a similar level, however, in more recent periods, housing repair and maintenance has shown stronger growth.

In July 2016, all repair and maintenance decreased by 1.1%. Non-housing repair and maintenance was the main contributor to the fall, decreasing by 1.2%, whilst total housing repair and maintenance fell by 1.0%.

Compared with the same period a year ago, there was a decrease of 3.2% in all repair and maintenance; with housing and non-housing repair and maintenance decreasing by 3.5% and 2.9% respectively.

Construction output consists of several work types, split into new work or repair and maintenance. As discussed in section 4, all new work provides the main contribution to all work as well as its underlying pattern. In turn, new housing work provides the main contribution to all new work as shown in Figure 4.

In the early part of the time series, the monthly paths for construction output, new work and new housing are similar, however, throughout 2013 the rate at which new housing increased was far greater than in new work and construction output. As a result, over the course of the time series, new housing increased by 81% compared with a 20% increase in new work and an 18% increase in all construction output work.

In 2015, new housing started to show signs of volatility with periods of expansion and contraction around a similar level.

In July 2016, output in total new housing fell by 0.8% compared with June 2016. When compared with July 2015, total new housing output reported an increase in growth of 5.6%.

Figure 5 looks at the 2 components of total new housing. It shows that private new housing is the main contributor for the overall trend in total housing, accounting for approximately 86% of all new housing.

Private new housing reported a decrease in growth of 0.6% in July 2016 compared with June 2016, while public new housing fell by 1.6%.

On the year, private new housing increased by 8.3% compared with July 2015, while public new housing decreased by 8.6%. This was the 15th consecutive period of year-on-year decreases in public new housing.

Table 1 provides a summary of growth rates across the different types of construction work in July 2016. Some main points from this table are as follows:

• all work showed no growth in July 2016 compared with June 2016; there was an increase in all new work, offset by a fall in repair and maintenance

• all work types reported month-on-month decreases except infrastructure and public other new work

• there were year-on-year decreases in all work types except private new housing, public other new work and private commercial work

Figure 6 shows the contribution of each sector to output growth in the construction industry between July 2016 and June 2016.

In July 2016, there were decreases in all work types except public other new work and infrastructure. The largest upwards contribution came from infrastructure, while the largest downwards contribution came from private commercial work.

In Quarter 2 (Apr to June) 2016, the volume of all new orders:

• increased by 8.6% compared with Quarter 1 (Jan to Mar) 2016

• increased by 7.5% compared with Quarter 2 2015

There were increases in the volume of new orders for all work types except infrastructure and private industrial work.

The volume of new orders in new housing increased by 25.0% between Quarter 1 2016 and Quarter 2 2016. This is the highest quarter-on-quarter increase since Quarter 1 1967 when growth increased by 44.1%.

The largest contribution to the increase in new orders in new housing in Quarter 2 2016 came from private new housing which increased by 28.2% compared with Quarter 1 2016 to a level of £3.5 billion; this is the highest level since Quarter 2 2007 when it was £3.6 billion. Compared with the same period a year ago private housing increased by 12.7%.

Public new housing also reported an increase in Quarter 2 2016 compared with Quarter 1 2016 of 4.4%, however, it should be noted that the weight of public new housing is small at only 11% of total new housing.

The volume of infrastructure new orders decreased by 17.4% in Quarter 2 2016 compared with Quarter 1 2016. Compared with the same period a year ago infrastructure decreased by 26.8%. Infrastructure is a particularly volatile series due to the range of products, such as electricity, gas, road, rail, that are included within this type of work; large movements are therefore not unusual.

The volume of all new orders in Quarter 2 2016 increased by 7.5% compared with the same period a year ago. There were increases in all work types except infrastructure and private industrial work.

You should note that there is a time lag between how long an order turns into output (if at all) and therefore an assumption that improved new orders data will result in an improved output picture is a difficult assumption to make.

Further, you should note that there may be some discontinuity in the data around Quarter 3 (July to Sept) 2013 where the Barbour ABI data were used for the first time to compile these statistics.

Output in the construction industry estimates are produced from the Monthly Business Survey on the second Friday of the month, 2 months after the reporting month. Revised results, for previously published periods, are published in line with the National Accounts Revisions Policy. More information about the data content for this release can be found in the background notes.

Revisions are an inevitable consequence of the trade-off between timeliness and accuracy. The response rate in July 2016 was 67.6% of questionnaires, accounting for 77.6% of registered turnover in the construction industry. Therefore the estimate is subject to revisions as more data become available.

The monthly output in the construction industry time series now spans 79 months, however, you should note that this is the minimum time span recommended by Eurostat for seasonal adjustment. While the seasonal pattern is generally established after 60 months in a monthly time series, there is still potential for increased revisions until the seasonal pattern has matured.

All estimates, by definition, are subject to statistical uncertainty and for many well-established statistics, we measure and publish the sampling error associated with the estimate, using this as an indicator of accuracy. For construction output we publish sample and non-sample errors in Table 11 of the Output in the construction industry dataset. It should be noted that we are continually working on methodological changes to improve the accuracy of the construction output estimates, progress on these can be found on the ONS continuous improvement page on our website.

Construction estimates are a main component of the output approach to measuring GDP, along with the estimates of services, production and agriculture. To help you,, the short-term economic indicator releases that directly feed into GDP include an additional table of the GDP components. This table should help to inform you of the relationship between the individual components which comprise GDP output. The publication dates and the quarterly growths of the individual GDP components are shown below.

Each component of GDP has a weight within GDP based on its value in 2013. Construction has a weight of 59, which means that it is 59 parts of the 1,000 that make up total GDP.

To determine the effect each component has on GDP multiply the component growth by its weight in GDP.

An example using Quarter 1 (Jan to Mar) 2016 data:

Construction growth = -0.3
Weight in GDP = 0.059 (59/1000)
Effect on GDP = -0.3 * 0.059 = 0.02 or 0.1 to 1 decimal place (dp)

Revisions to components and the effect on GDP can be calculated using the same process. As a general rule there are no revisions to GDP when the component revisions are:

Index of Production (IoP) = between 0.3 and -0.3
Construction = between 0.9 and -0.9
Index of Services (IoS) = 0.0 (all values above or below 0.0 effect GDP due to the high weight of IoS in GDP)

Because;

IoP = 0.146*0.4 = 0.0584 or 0.1 to 1 dp
Construction = 0.059*0.9 = 0.0531 or 0.1 to 1 dp
IoS = 0.788*0.1 = 0.0788 or 0.1 to 1 dp

Table 3 shows the latest monthly and revised quarterly output figures that fed into the second estimate of GDP for Quarter 2 (Apr to June) 2016 published on 26 August 2016.

The second estimate of GDP published on 26 August 2016 contained an estimate for quarterly construction of a decrease of 0.7%. This estimate has been revised upwards by 0.6 percentage points in this release to a decrease of 0.1%. This has no effect on GDP to 1 decimal place.

The monthly estimate of construction output showed stable output in July 2016, following a decline of 0.9% in June 2016 and alternating periods of expansion and contraction throughout 2015 and 2016. Rising infrastructure output provided the largest positive contribution (0.5 percentage points on the month) while new private commercial work and non-housing repair and maintenance saw the largest falls (contributing minus 0.3 and minus 0.2 percentage points on the month, respectively). Looking back over a slightly longer period, construction output in July 2016 is just below the average level in 2015.

Unchanged construction output this month continues a trend of broadly flat output growth since the start of 2015, in contrast to the strength in output seen from the start of 2013 to the end of 2014. Therefore, Office for National Statistics (ONS) construction data shows little evidence so far of a slowdown induced by the EU referendum vote in late June.

The Bank of England’s Agents’ summary of business conditions, covering late June 2016 to late July 2016, reported an easing in construction output, more so than in June. The RICS UK Construction Market Survey for Quarter 2 (Apr to June) 2016 also reports a slowdown in construction activity with skills shortages, financial constraints and planning and regulatory delays cited as inhibiting growth in the sector (although this data source only covers up to the end of June 2016).

Housing

Construction of new housing output fell slightly in July 2016 (by 0.8% compared with June 2016), coinciding with a slight fall in demand for housing in July 2016: HM Revenue and Customs’ UK Property Transactions Statistics release reported a 0.9% decrease in the number of residential property transactions between June 2016 and July 2016. As such, residential property transactions remain below the levels seen before the changes to Stamp Duty rates introduced in April 2016.

With respect to house prices, the ONS House Price Index for June 2016 reported an 8.7% increase in house prices in the year from June 2015, continuing the relatively strong growth seen since mid-2013. The average house price was £2,100 higher than in the previous month (the ONS House Price Index for July 2016 will be released on 13 September 2016). More recently, Nationwide and Halifax house price data reported annual house price growth in the year to July 2016 of 5.2% and 8.4% respectively.

Output in the construction industry follows the Eurostat Short Term Statistics (STS) regulation for production in construction. Before any comparisons are made with the Euro area or EU28, it is worth noting that the UK is the only member state to follow the A method for compiling production in construction statistics.

The latest release of production in construction showed that construction output in the euro area (EA19) remained stable in June 2016 compared with May 2016 and decreased by 0.3% in the EU28. The Great Britain estimate for June 2016 showed that construction output decreased by 0.9%. It should be noted that an accurate comparison cannot be made as Eurostat data are calculated on a 2010 = 100 basis, while Great Britain data are calculated on a 2013 = 100 basis.

Outside of the EU, the US Census Bureau release Value of construction put in place published on 1 September 2016 showed provisional estimates of construction output during July 2016 were nearly the same as the revised June 2016 estimate. The July 2016 figure is 1.5% above the July 2015 estimate.

International comparisons

International construction comparisons are compiled by Eurostat. The estimates produced in this bulletin are included in these comparisons. Further information can be found on the Eurostat web page.

1. Methods

   Our monthly construction output survey measures output from the construction industry in Great Britain. It samples 8,000 businesses, with all businesses employing over 100 people or with an annual turnover of more than £60 million receiving a questionnaire by post every month.

   Estimates are based on output data collected through the monthly Construction Output Survey. Response rates at the time of publication are included for the current month and the 3 months prior. The response rates for those historical periods are updated to reflect the current level of response, incorporating data from late returns. There are 2 response rates included, with 1 percentage for the amount of turnover returned and the other percentage for the amount of questionnaire forms.

   Table 4: Overall response rates (per cent %) April 2016 to July 2016

   Great Britain
   Year	Period	Turnover	Questionnaire
   2016	July	77.6	67.6
   	June	84.0	73.7
   	May	90.8	76.7
   	April	93.6	77.9
   Source: Construction: Output and Employment – Office for National Statistics

   Download this table Table 4: Overall response rates (per cent %) April 2016 to July 2016

   .xls (25.1 kB)

   Since the 1950s, new orders in construction data had been collected from a sample survey of businesses; originally monthly and then quarterly. There were some known quality issues with the survey data as:

   • the coverage of the survey was unknown
   • new orders allocated to regions were not always accurately recorded

   The new orders data are now supplied under contract by Barbour ABI. Barbour ABI provide us with improved coverage and regional splits of new orders in construction data.

2. Quality

   The latest Quality and Methodology report for the Output of the Construction Industry estimates can be found on our website.

   The latest Quality and Methodology report for New Orders in the Construction Industry estimates can be found on our website.

   These contain important information on:

   • the strengths and limitations of the data and how it compares with related data
   • users and uses of the data
   • how the output was created
   • the quality of the output including the accuracy of the data

3. Revision policy

   Construction output conforms to the standard National Accounts Revisions policy, which can be found on our website. In line with this, the construction output release for July 2016 contains no revisions to January 2015.

   Figures for the most recent months are provisional and subject to revision in light of (a) late responses to the Monthly Business Survey (MBS) (b) revisions to seasonal adjustment factors which are re-estimated every period and (c) improved treatment of outliers.

   New orders data has a revision period back to Quarter 2 (Apr to June) 2013 and is not covered by the National Accounts Revisions Policy due to not directly feeding the national accounts.

4. Revisions

   One indication of the reliability of the main indicators can be obtained by monitoring the size of revisions. Analysis of the previously published quarterly seasonally adjusted chained volume measure series has shown that revisions to construction data are small.

   Generally these quarterly revisions are less than 1 percentage point when compared with the final revised period 5 quarters after initial publication. This indicates that the published estimates are a reliable snapshot of the output in the industry at the date of publication.

   The size and pattern of revisions for both output and new orders data which have occurred in the open period can be found in the 1 month and 3 month revisions triangles datasets on the construction web page. Please note that these indicators only report summary measures for revisions. The revised data may be subject to sampling or other sources of error. Details about this revisions material can be found on our revisions page.

   It should be noted that due to seasonal adjustment taking place on a short span of data points used to interpret the seasonal effects, there is potential for increased revisions until the seasonal pattern is established within the time series. The seasonal pattern is generally established after 60 months in a monthly time series.

   Please note that a monthly seasonally adjusted chained volume series is not available pre-2010. This is due to monthly data not being available for this period. These data are a requirement for creating previous year’s prices from which chain-linked volume measures are created:

   • the coverage of the survey was unknown
   • new orders allocated to regions were not always accurately recorded

   The new orders data are now supplied under contract by Barbour ABI. Barbour ABI provide us with improved coverage and regional splits of new orders in construction data.