Construction output in Great Britain: August 2018

Short-term measures of output by the construction industry in Great Britain and contracts awarded for new construction work in the UK.

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Cyswllt:
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Dyddiad y datganiad:
10 October 2018

Cyhoeddiad nesaf:
9 November 2018

1. Main points

  • Construction output continued to recover following a relatively weak start to the year, increasing by 2.9% in the three months to August 2018.

  • The three-month on three-month growth in August 2018 was driven by both repair and maintenance and all new work which increased by 2.8% and 2.9% respectively.

  • Construction output declined by 0.7% between July and August 2018, driven by falls in both repair and maintenance and all new work which decreased by 0.6% and 0.8% respectively.

  • Estimates in this release are consistent with the GDP quarterly national accounts, UK: April to June 2018 publication released on 28 September 2018. This includes the use of VAT turnover data for Quarter 1 (Jan to Mar) 2018 for the first time.

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2. Things you need to know about this release

The monthly business survey, Construction output, collects output by sector from businesses in the construction industry within Great Britain. Output is defined as the amount chargeable to customers for building and civil engineering work done in the relevant period excluding Value Added Tax (VAT) and payments to sub-contractors.

The survey’s results are used to produce seasonally adjusted monthly, quarterly and annual estimates of output in the construction industry at current price and at chained volume measures (removing the effect of changes in price). The estimates are widely used by private and public sector institutions, particularly by the Bank of England and Her Majesty’s Treasury, to assist in informed decision-making and policy-making. Construction output is an important economic indicator and is also therefore used in the compilation of the output measure of gross domestic product (GDP).

Summary information can be found in the Construction output Quality and Methodology Information report.

Compared with the previous Construction output in Great Britain: July 2018 publication released on 10 September 2018, this October 2018 release contains revisions in the back series of construction output estimates from January 2017 onwards. This is to ensure consistency with the Quarterly National Accounts, UK: April to June 2018, released on 28 September 2018, which included revisions to construction output from 2017 Quarter 1 (Jan to Mar) to 2018 Quarter 2 (Apr to June).

This August 2018 release represents the fourth monthly construction output release in which the new improved methodology has been used to impute data for businesses that have not yet returned their Office for National Statistics (ONS) survey, along with a further adjustment to address any bias in early survey responses for construction output. Full details of these improvements can be found in Improvements to construction statistics: Addressing the bias in early estimates of construction output, June 2018.

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3. Construction output in August 2018

Construction output increased by 2.9% in the three months to August 2018, as the industry continues to recover following a weak start to the year. The three-month time series provides a more comprehensive picture of the underlying trends within the industry, compared with the more volatile monthly series, which is also shown in Figure 1.

Following a marked fall in the rolling three-month series at the beginning of 2018, construction output continued to recover in the three months to August 2018. Due to the revisions, highlighted in Section 6, the new record high in the monthly all work series is now December 2017. In comparison to the lowest point in the last five years, September 2013, this new record high is 27.2% above this lowest point. Despite the month-on-month decrease for August 2018, construction output remains 26.0% above this lowest point.

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4. Contributions to growth

Construction output can be broken down by different types of work; these are categorised into all new work, and repair and maintenance, as shown in Figure 2. It is worth noting that all new work accounts for approximately two-thirds of all work, while repair and maintenance accounts for approximately one-third.

Figure 2 shows that since the beginning of 2015, new work, and repair and maintenance have followed a broadly similar pattern. Both repair and maintenance, and new work have risen steadily.

Following three consecutive months of contraction in the all new work month-on-month series at the start of 2018, construction output has bounced back. However, following growth of 2.8% in May, 0.9% in June 2018 and 0.5% in July, construction output decreased by 0.7% in August 2018. The month-on-month decrease in construction output in August 2018 stemmed from a decrease in both all new work and repair and maintenance which decreased 0.8% and 0.6% respectively in comparison with July 2018.

Figure 3 shows the difference in the three-month on three-month growth from the different construction sectors, taken from our seasonally adjusted chained volume measure series.

Construction output increased by £1,156 million in the three months to August 2018. The most notable contribution to growth came from private housing new work, which increased by £442 million in the three months to August 2018. In addition, other notable three-month on three-month growth came from non-housing repair and maintenance and infrastructure, increasing by £262 million and £232 million respectively.

In contrast, the only sectors to provide downward pressure on output in the three months to August 2018 came from private commercial new work and private industrial new work, which had small falls in the three-month on three-month series, decreasing by £45 million and £9 million respectively in August 2018.

As indicated in the construction output in Great Britain for March 2018 publication, the adverse weather for this month potentially contributed to the three-month on three-month growth in August 2018, although it is difficult to quantify the exact impact on the industry.

Figure 4 shows the difference in month-on-month growth from the different construction sectors, taken from our seasonally adjusted chained volume measure series. Compared with the previous month, construction output decreased by £100 million in August 2018.

The most notable decrease came from housing repair and maintenance, which decreased by £81 million in August 2018. Of this fall, private housing repair and maintenance contributed significantly with a £83 million decrease. This more than offset the £54 million increase in non-housing repair and maintenance. The other notable contributions to month-on-month decrease came from public other new work and private housing new work, decreasing by £29 million and £25 million respectively in the month-on-month series in August 2018.

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5. Detailed growth rates

Table 1 provides a detailed description of the growth rates of each work type, alongside the seasonally adjusted chained volume measure level of output.

Total all work decreased to £13,735 million in August 2018. This decrease stems from falls in both all new work and repair and maintenance, which fell to £8,960 million and £4,774 million.

In comparison with August 2017, construction output grew 0.3%. This month-on-year increase occurred as a result of a 1.9% increase in repair and maintenance which more than offset the 0.6% fall in the all new work series. The most notable contributions to month-on-year growth came from private housing new work and non-housing repair and maintenance with both growing by 7.4%. In contrast, compared with the same period in 2017, the public other and private commercial new work sectors continued their month-on-year declines falling by 15.7% and 6.4% respectively. This represents a 17th consecutive fall in the month-on-year series for public other new work and a ninth consecutive fall in the series for private commercial new work.

Following increases in June and July 2018, construction output continued to grow for August 2018 by 1.6% in the three-month on year series. The 8.2% and 5.8% three-month on year growth in private housing new work and non-housing repair and maintenance for August 2018 more than outweighed the 12.9% and 4.7% falls in public other and private commercial new work respectively.

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6. Revisions

This is the first monthly release to incorporate the revisions made in the GDP quarterly national accounts, UK: April to June 2018 published on 28 September. As a result, revisions have been made back to January 2017, resulting from improvements to nominal data by incorporating the latest survey and VAT turnover data. As a result this has also impacted on the seasonal adjustment. This monthly release is also the first time in which VAT turnover data for 2018Q1 has been used to replace survey returns in the monthly data. This represents approximately 85,000 businesses with VAT turnover data replacing 2,400 survey returns in the monthly construction output sample. For a list of those industries selected to use VAT turnover within construction please see the VAT industry selection matrix.

The revisions to the calendar quarter chained volume measure, seasonally adjusted series along with an indication of the main causes of the quarterly revisions are outlined in Table 2 below. This is comparing the previous Construction output in Great Britain: July 2018 publication released on 10 September 2018 against today’s (10 October 2018) publication.

The most significant revision to quarterly growth can be seen in Quarter 1 (Jan to Mar) 2018, which has been revised downwards by 0.8 percentage points, from negative 0.8% to negative 1.6%. This revision has been predominantly caused by including VAT turnover data for the first time for the quarter. This is the only quarter to have an impact on GDP and was the main driver as to why Quarter 1 2018 was revised down by 0.1 percentage points to 0.1% in the quarterly national accounts published on 28 September.

While the inclusion of VAT turnover data has caused revisions to the monthly data in Quarter 1 2018, the general picture of the monthly path has remained broadly similar to that previously published, with revised monthly growth of negative 1.9% in January, negative 0.9% in February and negative 1.6% in March. This reiterates the weakness across all months of the quarter following a record high in the level of the series in December 2017.

Figure 5 shows the comparison of month-on-month, chained volume measure seasonally adjusted growth rates for all construction work, comparing the previous publication with the latest publication from January 2017 to August 2018.

In addition to the revisions to construction output first published within Quarterly National Accounts, UK: April to June 2018, released on 28 September 2018 this publication also includes revisions to the July 2018 construction output estimate. July 2018 has an unrevised growth rate of 0.5% at the all-work level for the month on month volume, seasonally adjusted series, however at the sector level revisions can be seen.

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9. Quality and methodology

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.

The Construction Quality and Methodology Information report contains important information on:

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

The New orders in construction Quality and Methodology Information report provides similar information for the new orders data.

Value Added Tax (VAT) turnover has been used to estimate the output of small- and medium-sized businesses. In this release, VAT turnover has been used for selected industries previously covered by the Monthly Business Survey from Quarter 1 (Jan to Mar) 2016 to Quarter 1 (Jan to Mar) 2018. In line with Quarterly National Accounts, UK: April to June 2018, released on 28 September 2018, VAT data has now been included in construction output estimates for Quarter 1 2018 for the first time. This is the firstly monthly output release to include VAT turnover data for Quarter 1 2018.

Further information on the use of VAT turnover and its impact can be found in the following articles:

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10. Construction statistics engagement and development

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 then Department for Business, Innovation and Skills (BIS) on 1 April 2015, introducing an interim solution for measuring output prices in June 2015 for all periods from January 2014 onwards.

As part of the ongoing ONS construction statistics development programme, we have worked closely with the Construction Statistics Steering Group. This group provides a forum for ONS to engage with main users of construction statistics on the development of ONS-published construction statistics, including other government departments, industry experts and academics, to identify areas for improvement.

In September 2017, we released the impact of improvements to construction statistics article, which explains and highlights the impact of improvements made to construction statistics, affecting the nominal data series, output price indices and seasonal adjustment. As a result of these improvements, the output price indices are no longer considered to be an interim method.

In addition to the improvements made in September 2017, we have since announced two further methodological improvements to construction output estimates, which have since been implemented, detailed in the two articles:

The overall impact of the improvements to construction statistics that were included in Quarterly national accounts: Jan to Mar 2018 are outlined in the article released on 29 June 2018.

The Office for Statistics Regulation is currently in the process of re-assessing the National Statistic status for construction statistics: Output, New orders and Price indices.

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