Output in the construction industry: June 2015 and Quarter 2 (Apr to June) 2015

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

• In Quarter 2 (Apr to June) 2015, output in the construction industry was estimated to have increased by 0.2% compared with Quarter 1 (Jan to Mar) 2015. Between Quarter 2 (Apr to June) 2015 and Quarter 2 (Apr to June) 2014 output was estimated to have increased by 2.4%

• Upward pressure on the quarter came from all new work which increased by 1.0%, with private new housing, infrastructure and public other new work increasing by 3.9%, 0.5% and 1.2% respectively

• All repair and maintenance decreased by 1.2% in Quarter 2 (Apr to June) compared with Quarter 1 (Jan to Mar). Public housing repair and maintenance and non-housing repair and maintenance reported falls of 0.4% and 3.9% respectively

• Output in the construction industry was estimated to have increased by 0.9% in June 2015 compared with May 2015. On the year, output in the construction industry increased by 2.6% in June 2015 compared with June 2014

• The preliminary estimate of gross domestic product (GDP), published on 28 July 2015 contained a forecast for construction output of 0.0%. This has been revised based upon updated survey responses and output is now estimated to have increased by 0.2%. This upward revision to construction output of 0.2 percentage points will have no impact on GDP to 1 decimal place

• Data back to April 2015 are open for revision in this release. Output growth in the construction industry has been revised upwards in April 2015 by 0.5 percentage points to 0.0% and in May 2015 by 0.3 percentage points to -1.0%. These revisions were caused by the incorporation of late data. More information on revisions can be found in the background notes

On 11 December 2014 the UK Statistics Authority announced its decision to suspend designation of Construction Price and Cost Indices (CPCI) as National Statistics due to concerns about the quality of these deflators. As a result the UK Statistics Authority announced its decision to suspend the designation of Output and New Orders as National Statistics in respect of the Code of Practice for Official Statistics.

ONS took responsibility for the publication and development of the Construction Price and Cost Indices from the Department for Business Innovation & Skills (BIS) on 1 April 2015. Since this point, we have worked towards creating an interim solution to measure output prices and replace the statistical models that had been used in the production of chained volume measures (CVMs) for output in the construction industry since Quarter 3 (July to Sept) 2014 and to provide an ongoing source of data from Quarter 1 (Jan to Mar) 2015 onwards. This interim solution was included in the data published in June 2015 for all periods from January 2015 onwards. We have also launched a consultation to gather feedback from users to help us improve this methodology and understand more about how the CPCIs are used.

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 GDP.

Detailed estimates along with a longer run of time series data are available to download in the Output in the Construction Industry, June 2015 reference tables. These tables contain 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 (Jan to Mar) 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.

Figure 1 shows the 2 main components of all work. The chart shows that the increase in all work in Quarter 2 (Apr to June) 2015, of 0.2% compared with Quarter 1 (Jan to Mar) 2015, has been caused by an increase in all new work of 1.0%. This has been partially offset by a fall in repair and maintenance which fell by 1.2%.

Figure 2 looks at the main components of all new work. After a fall in Quarter 1 (Jan to Mar) 2015, total new housing increased in Quarter 2 (Apr to June) to continue the underlying pattern of growth since early 2013. The level of total housing in Quarter 2 (Apr to June) 2015 was the highest on record at £7.1 billion. Quarter 2 (Apr to June) 2015 is the 4th successive quarter of growth in infrastructure, after remaining broadly flat since early 2012. Other new work continued to fall into Quarter 2 (Apr to June) 2015, both private industrial and private commercial reported decreases.

Figure 3 shows the main components of repair and maintenance. In Quarter 2 (Apr to June) 2015, all repair and maintenance fell by 1.2% compared with Quarter 1 (Jan to Mar) 2014. While non-housing repair and maintenance fell by 3.9%, there was an increase in housing repair and maintenance of 1.5%.

All work

In June 2015:

• increased by 0.9% compared with May 2015

• increased by 2.6% compared with June 2014

Figure 4 shows the 2 main components of all work (all new work and repair and maintentance). It is clear that the monthly path for construction output is a volatile one. There has been sustained growth since early 2013, however, in more recent months growth has slowed. The chart shows that the increase of 0.9% into June 2015 was caused by all new work, which increased by 1.6% compared with May 2015. This was partially offset by repair and maintenance, which decreased by 0.3%.

Figure 5 looks at the main components that make up all new work. There was sustained growth in all new housing from early 2013 to mid 2014, after which it has been relatively flat, however, there has been a return to growth in June 2015. Infrastructure and other new work remained relatively flat, however, both work types reported increases in June 2015.

Figure 6 looks at the 2 main components of repair and maintenance. In June 2015, there was a fall in non-housing repair and maintenance, while total housing repair and maintenance increased. The underlying level of both non-housing and housing repair and maintenance are similar, however, non-housing repair and maintenance is the more volatile work type.

Summary of growth rates for all work types

Growth rates across the different types of construction work in June 2015:

• all work types, except private housing repair and maintenance and non-housing repair and maintenance, increased on the month

• all components of new work showed an increase in June 2015 compared with May 2015

• year-on-year the increase in all work was due to all new work; all work within all new work, except public new housing and private industrial, reported increases

Construction estimates are a main component of the output approach to measuring GDP along with the estimates of services, production and agriculture. To aid understanding the short-term economic indicator releases that directly feed into GDP include an additional table of the GDP components. This table should show you the relationship between the individual components that 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 2011. Construction has a weight of 64, which means that it is 64 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 2 (Apr to June) 2014 data: Construction growth = 0.7 Weight in GDP = 0.064 (64/1000) Effect on GDP = 0.7 * 0.064 = 0.0448 or 0.0 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 0.7 and -0.7 Index of Services (IoS) = 0.0 (all values above or below 0.0 effect GDP due to the high weight of IoS in GDP).

This is because:

IoP = 0.146*0.4 = 0.0584 or 0.1 to 1 dp
Construction = 0.064*0.8 = 0.0512 or 0.1 to 1 dp IoS = 0.784*0.1 = 0.0784 or 0.1 to 1 dp

Table 3 shows the latest monthly and revised quarterly output figures that fed into the GDP preliminary release for Quarter 2 (Apr to June) 2015 published on the 28 July 2015.

The preliminary estimate of GDP published on 28 July 2015 contained an estimate for quarterly construction of 0.0%. This estimate has been revised within this release based upon updated survey responses and is now estimated to have increased by 0.2%.

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. Revisions are an inevitable consequence of the trade-off between timeliness and accuracy. The response rate in June 2015 was 71.8% of questionnaires, accounting for 81.1% of registered turnover in the construction industry. Therefore the estimate is subject to revisions as more data becomes available. More information about the data content for this release can be found in the background notes

The monthly output in the construction industry time series now spans 66 months, however, note that this is only slightly longer than 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 main reference tables. 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.

Construction output grew by 0.9% in June 2015 compared with a fall of 1.0% in the previous month. Despite this increase the data for June 2015 continues a run of relatively weak monthly growth. The annual rate of construction output growth has slowed from 10.2% in the year to June 2014 and a recent high of 11.2% in the year to December 2014, to 2.6% in the year to June 2015. The moderation of construction output growth is consistent with the external indicators which suggest that output grew in June 2015.

The recent easing of construction output growth is partly due to a slowdown in housing output growth. In 2014 output in this sector grew by 25.6%, recovering its pre-downturn level of output in Quarter 3 (July to Sept) 2014. This growth was supported by a recovery of house prices, as well as a range of government policies such as Help to Buy. Since Quarter 3 (July to Sept) 2014, however, the growth rate has slowed. Total housing output grew by 4.6% in the year to June 2015. Private house building, which accounts for the largest share of total housing output, grew by 8.5% in the year to June 2015, while public housing output fell by 9.8% over the same period, putting downward pressure on housing output overall.

The slowdown in housing output growth may be due to the slower pace of house price growth affecting building incentives and skill shortages which affect the ability of firms to deliver new housing units. The House Price Index (HPI) shows that house prices increased by 5.7% in the year to May 2015; this slower rate of growth may reduce incentives for developers to undertake new work. The imbalance between demand and supply of houses on the market may partly explain why house prices continue to rise albeit at a slower rate.

The Bank of England's Inflation Report for August 2015 notes that there is a shortage of housing, partly reflecting strong demand. This is captured by the Royal Institute of Chartered Surveyors, which indicated that the number of new buyer enquiries has increased during 2015. Improved consumer confidence and historically low mortgage rates are also likely to increase mortgage demand and housing transactions, as will expectations of future interest rate rises. Mortgage approvals increased by 8.2% in Quarter 2 (Apr to June) 2015 from the previous quarter. However, this was well below expectations of a year ago and is relatively subdued compared to pre-crisis levels.

Monthly housing output, one of the sub-categories of all new work, grew by 0.6%, both the public and private sector increased. All components of other new work, which include private infrastructure and private commercial, also grew.

The Bank of England's Agents’ Summary of Business Conditions for July 2015 noted that commercial property developers benefited from continued improvement in funding conditions from bank and non-bank lenders. The improved credit conditions are one reason that commercial real estate transaction volumes were rising steadily. Commercial construction, particularly warehouse construction, continued to recover and there was continued output growth in the production of construction materials. However, repair and maintenance contracted by 0.3%, largely driven by the non-housing component, depressing the overall monthly growth rate for construction output. In contrast, there was continued growth for repair and maintenance work. Overall, the Bank of England report that construction output grew steadily in June 2015.

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 EU 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) increased by 0.3% and fell by 0.3% in the EU28 in May 2015 compared with April 2015. The Great Britain estimate for May 2015 showed that construction output decreased by 1.0%. In May 2015 compared with May 2014, production in construction increased by 0.3% in the EA19 and by 0.5% in the EU28. Note that an accurate comparison cannot be made as Eurostat data are calculated on a 2010 = 100 basis, while data for Great Britain are calculated on a 2011 = 100 basis.

Outside of the EU, the US Census Bureau release Value of construction put in place showed provisional estimates of construction output increased by 0.1% in June 2015 compared with May 2015 and increased by 12.0% compared with June 2014.