Construction output in Great Britain: June 2016 and Apr to June 2016

The reporting period for this release covers the second quarter of 2016 plus the calendar month of June 2016, and therefore includes data for a short period after the EU referendum. There is very little anecdotal evidence at present to suggest that the referendum has had an impact on output.

In Quarter 2 (Apr to June) 2016, output in the construction industry was estimated to have decreased by 0.7% compared with Quarter 1 (Jan to Mar) 2016.

Downward pressure on the quarter came from all new work, which decreased by 0.8%, and repair and maintenance (R and M), which decreased by 0.5%.

Between Quarter 2 2016 and Quarter 2 2015, output was estimated to have decreased by 1.4%.

In June 2016, construction output decreased by 0.9% compared with May 2016.

The preliminary estimate of gross domestic product (GDP) for Quarter 2 (Apr to June) 2016, published on 27 July 2016, contained a forecast for construction output of a fall of 0.4%. This estimate has been revised downwards by 0.3 percentage points within this release based upon further survey responses; output is now estimated to have decreased by 0.7%. This downward revision to construction output has no impact to 1 decimal place on GDP growth.

The release for June 2016 has a revision period back to April 2016. Revisions in this release were caused by 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 Value Added Tax (VAT) and payments to sub-contractors.

Construction output estimates are a short-term indicator of construction output by the private sector and public corporations within Great Britain and are produced from a monthly survey of 8,000 businesses in Great Britain. The 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). Unless otherwise stated, all data referred to are volume estimates which are seasonally adjusted.

Detailed estimates, along with a longer run of time series data, are available to download in the Output in the Construction Industry: June 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 article.

The data published in this release cover construction estimates for Great Britain. Construction output estimates for Northern Ireland can be obtained from the Central Survey Unit.

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 Department of Business Innovation and Skills (now the Department for Business, Energy and Industrial Strategy) 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.

All work

In Quarter 2 (Apr to June) 2016 all work:

• decreased by 0.7% compared with Quarter 1 (Jan to Mar) 2016
• decreased by 1.4% compared with Quarter 2 (Apr to June) 2015

Figure 1 shows the 2 main components of all work: all new work and repair and maintenance. From early 2013, the measures increased steadily; however, in late 2014 all new work continued to increase while repair and maintenance declined.

In Quarter 2 2016, all work decreased by 0.7% compared with Quarter 1 2016, with all new work and repair and maintenance decreasing by 0.8% and 0.5% respectively. Compared with Quarter 2 2015 all work decreased by 1.4%; this is the first year-on-year decrease since Quarter 1 2013. Once again there were decreases in both components, all new work falling by 1.7% and repair and maintenance by 0.8%.

Figure 2 looks at the main components of all new work. Compared with the previous quarter, total new housing and infrastructure decreased by 1.1% and 3.7% respectively, the latter being the third consecutive quarterly fall.

Compared with the same period a year ago, there was a fall of 10.1% in infrastructure: the largest fall since Quarter 2 in 2012. Other new work remained fairly flat since 2004, but has increased by 1.0% in Quarter 2 2016 compared with Quarter 1. Compared with the same period a year ago, total new housing increased by 1.8%.

Figure 3 looks at the main components of repair and maintenance, which decreased by 0.5% in Quarter 2. Repair and maintentance in housing decreased by 1.8%, with non-housing repair and maintenance increasing by 0.9%. On the year, repair and maintenance fell by 0.8%. Total housing repair and maintenance was the main contributor, falling by 2.1%, while non-housing repair and maintenance increased by 0.5%.

All work

In June 2016 all work:

• decreased by 0.9% compared with May 2016
• decreased by 2.2% compared with June 2015

Figure 4 shows the 2 main components of all work: all new work and repair and maintenance. The chart shows that since the 3 series began in January 2010, the monthly path has been volatile. The early period shows that after a rise in output in early 2010, the level remained fairly consistent until late 2011 when output started to fall.

Output increased steadily in 2013 and 2014 with all new work and repair and maintenance performing at a similar level; however, in late 2014 the components began to diverge.

All work has fallen this month by 0.9% compared with May 2016, with both all new work and repair and maintenance decreasing by 0.6% and 1.4% respectively. Compared with the same period last year there was a fall of 2.2% in all work; once again both components reported decreases, with all new work falling by 1.9% and repair and maintenance by 2.6%.

Figure 5 looks at all new work. There was sustained growth in all new housing from early 2013 to late 2014 and, after a fall in early 2015, there was a return to growth in recent months. There was a slight fall of 0.4% in June compared with May 2016, however, year-on-year growth remained strong with an increase of 3.5%.

Infrastructure reported a decrease of 1.8% in June compared with May 2016, and fell by 7.5% when compared with the same period a year ago.

Other new work also reported a decrease of 0.3% in June 2016 compared with May 2016, while there was a fall of 3.3% compared with June 2015.

Figure 6 looks at the 2 main components of repair and maintenance. The level of both total housing and non-housing repair and maintenance has been fairly consistent since 2010, with a similar contribution from both components to total repair and maintenance.

In June 2016, repair and maintenance decreased by 1.4% compared with May 2016. Non-housing repair and maintenance was the main contributor to the fall, decreasing by 1.3%, whilst total housing repair and maintenance fell month-on-month by 1.5%.

When compared with the same period last year, repair and maintenance decreased by 2.6%. There was a fall in total housing repair and maintenance of 5.2%, but an increase of 0.2% in the non-housing component.

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

• there were month-on-month decreases in all work types except public new housing and private industrial work
• there were year-on-year decreases in all work types except private new housing and non-housing repair and maintenance

Figure 7 shows the contribution of each sector to output growth in the construction industry between Quarter 1 (Jan to Mar) 2016 and Quarter 2 (Apr to June) 2016. In the quarter, all work types except non housing repair and maintenance, private industrial and public other new work saw decreases in output. The largest downwards contribution came from infrastructure.

Figure 8 shows the contribution of each sector to output growth in the construction industry between June 2016 and May 2016. In June, all work types except private industrial saw decreases in output. The largest downwards contributions came from total housing repair and maintenance.

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 June 2016 was 68.1% of questionnaires, accounting for 73.8% 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 78 months; however, users should note that 60 months 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 Statistical Continuous Improvement page on our website.

Construction estimates are a main component of the output approach to measuring gross domestic product (GDP), along with the estimates of services, production and agriculture. As an aid to users, the short-term economic indicator releases that directly feed into GDP include an additional table of the GDP components. It is anticipated that this table will inform users 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 = minus 0.3
Weight in GDP = 0.059 (59/1000)
Effect on GDP = -0.3 * 0.059 = minus 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 minus 0.3
Construction = between 0.9 and minus 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 2 shows the latest monthly and revised quarterly output figures that fed into the GDP Preliminary Estimate release for Quarter 2 (Apr to June) 2016, published on 27 July 2016.

The Quarterly National Accounts, published on 27 July 2016, contained an estimate for quarterly construction of a decrease of 0.4%. This estimate has been revised within this release based upon further survey responses and is now estimated to have decreased by 0.7%.

The monthly estimate of construction output fell by 0.9% in June 2016, following a decline of 2.0% in May and alternating periods of expansion and contraction throughout 2015 and 2016. The largest contributions to the fall in June came from infrastructure, private housing repair and maintenance and non-housing repair and maintenance (each contributing minus 0.2 percentage points on the month). Over an annual period (between June 2015 and June 2016) construction output fell by 2.2%.

Despite strength in April, the quarterly measure of construction output fell by 0.7% in Quarter 2 (Apr to June) 2016. This followed a fall of 0.3% in Quarter 1 (Jan to Mar) 2016. Construction output in Quarter 2 2016 is 2.0% below the level in Quarter 1 2008, just before the economic downturn.

Overall, the slight fall in 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. The relatively modest fall in construction output this month conveys a somewhat less negative picture than that seen in the Markit/CIPS UK Construction Purchasing Managers’ Index, although this may be partly explained by us using a different measure of output and a different methodology to that used in the Markit/CIPS PMI.

The Bank of England’s Agents’ summary of business conditions, covering late May 2016 to late June 2016, reported an easing in construction output. Moreover, the RICS UK Construction Market Survey for Quarter 2 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.

Housing

Despite a (0.4%) monthly fall in total new housing, demand for housing increased in June, with HM Revenue and Customs’ UK Property Transactions Statistics release reporting a 4.9% monthly increase in the number of residential property transactions between May 2016 and June 2016. However, this increase comes from a relatively low base, following the commencement of higher stamp duty rates for buy-to-let properties in April 2016.

In terms of house prices, the House Price Index for May 2016 reported an 8.1% increase in house prices in the year from May 2015, continuing the relatively strong growth seen since mid-2013. The average house price was £2,400 higher than in the previous month. This is in line with Nationwide and Halifax house price data, which reported annual house price growth in the year to May 2016 of 4.7% and 9.2% 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) decreased by 0.5%, and by 0.7% in the EU28 in May 2016, compared with April 2016. The Great Britain estimate for May 2016 showed that construction output decreased by 2.1%. 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 2 May 2016, showed provisional estimates of construction output decreased by 0.6% in June 2016 compared with May 2016 and increased by 0.3% compared with June 2015.

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 Production in construction web page.