Construction output in Great Britain: Mar 2016 and Jan to Mar 2016

In Quarter 1 (Jan to Mar) 2016, output in the construction industry was estimated to have decreased by 1.1% compared with Quarter 4 (Oct to Dec) 2015.

Downward pressure on the quarter came from all new work which decreased by 0.6% and repair and maintenance (R&M) which decreased by 1.9%.

Between Quarter 1 (Jan to Mar) 2016 and Quarter 1 (Jan to Mar) 2015, output was estimated to have decreased by 1.9%.

In March 2016, output in the construction industry was estimated to have decreased by 3.6% compared with February 2016. All new work and repair and maintenance both reported falls of 3.6%.

The preliminary estimate of gross domestic product (GDP) for Quarter 1 (Jan to Mar) 2016 published on 27 April 2016 contained a forecast for construction output of a fall of 0.9%. This estimate has been revised downwards by 0.2 percentage points within this release based upon updated survey responses; output is now estimated to have decreased by 1.1%. This downward revision to construction output has no impact to 1 decimal place on GDP growth.

The release for March 2016 has a revision period back to January 2016. Revisions in this release were caused by the incorporation of late data. More information on revisions can be found in the background notes.

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. In the April 2016 publication, we may see larger than average revisions to March 2016 as this is the first time since the monthly series began in 2010 that Easter has fallen wholly in a March. When we have more data available in the future we will be able to review the impact of Easter over a longer time span.

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 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).

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

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 (BIS) 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 1 (Jan to Mar) 2016 all work:

• decreased by 1.1% compared with Quarter 4 (Oct to Dec) 2015
• decreased by 1.9% compared with Quarter 1 (Jan to Mar) 2015

Figure 1 shows the 2 main components of all work. The chart shows that there is volatility in both all new work and repair and maintenance throughout the time series. From early 2013, the 2 measures increased steadily, however, in late 2014 all new work continued to increase while repair and maintenance declined.

In Quarter 1 (Jan to Mar) 2016, all work decreased by 1.1% compared with Quarter 4 (Oct to Dec) 2015, with all new work decreasing by 0.6% and repair and maintenance decreasing by 1.9%. Compared with the same period a year ago, all new work decreased by 1.9%, this is the first year-on-year decrease since Quarter 1 (Jan to Mar) 2013. Once again there were decreases in both components, all new work falling by 1.3% and repair and maintenance by 3.0%.

Figure 2 looks at the main components of all new work. All new housing has shown underlying growth since Quarter 2 (Apr to June) 2013, with the exception of Quarter 3 (July to Sept) 2015.

In Quarter 1 (Jan to Mar) 2016, total housing increased by 4.8% compared with the previous quarter. Infrastructure reported a fall for the third consecutive quarter, decreasing by 5.6% in Quarter 1 (Jan to Mar) 2016 compared with Quarter 4 (Oct to Dec) 2015.

On the year there was a fall of 8.0% in infrastructure. Other new work remained fairly flat in the latter part of the time series, however, there was a fall in Quarter 1 (Jan to Mar) 2016 of 2.4% compared with Quarter 4 (Oct to Dec) 2015 and it is now at its lowest level since Quarter 4 (Oct to Dec) 2013. Compared with the same period a year ago, other new work decreased by 1.8%.

Figure 3 looks at the main components of repair and maintenance. In Quarter 1 (Jan to Mar) 2016, all repair and maintenance decreased for the sixth consecutive quarter, falling by 1.9%. There were decreases in both housing and non-housing repair and maintenance of 1.2% and 2.7% respectively. On the year, repair and maintenance fell by 3.0%. Non-housing repair and maintenance was the main contributor, falling by 5.3%, while housing repair and maintenance fell by 0.8%.

In Quarter 1 (Jan to Mar) 2016, there was an increase of 4.8% in total new housing output compared with Quarter 4 (Oct to Dec) 2015. Both public and private new housing reported increases of 4.2% and 4.9% respectively.

When compared with the same period a year ago, there was an increase of 3.4% in total housing, with private housing increasing by 7.5% offset slightly by a fall in public new housing of 14.3%.

Figure 4 shows the 2 components of total new housing. The level of private new housing is the main contributor to the level of total new housing, with public new housing having a much smaller contribution.

The level of private new housing has been increasing gradually since early 2013 and in Quarter 1 (Jan to Mar) 2016 was at its highest since records began in 1997 at £6.3 billion, while the level of total new housing is also at its highest at £7.5 billion.

All work

In March 2016 all work:

• decreased by 3.6% compared with February 2016
• decreased by 4.5% compared with March 2015; this was the largest year-on-year decrease since March 2013 when it fell by 6.1%

Figure 5 shows the 2 main components of all work. The chart shows that since the 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 2 components started to move in opposite directions.

All work has fallen month-on-month for the third consecutive month, with a fall of 3.6% in March 2016.There were also month-on-month falls in both components, with all new work and repair and maintenance both decreasing by 3.6%. Compared with the same period last year there was a fall of 4.5% in all work, once again both components reported decreases, all new work falling by 3.1% and repair and maintenance by 6.9%.

Figure 6 looks at all new work. There was sustained growth in 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 0.3% in March 2016 compared with February 2016, however, year-on-year growth remained strong with an increase of 4.1%.

Infrastructure continues to be volatile and reported a decrease of 6.5% in March 2016 compared with February 2016 and fell by 14.8% when compared with the same period a year ago.

Other new work has been fairly steady in recent periods, however, there was a fall of 5.1% in March 2016 compared with February 2016, while there was a fall of 2.9% compared with March 2015.

Figure 7 looks at the 2 main components of repair and maintenance. The level of both 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 March 2016 compared with February 2016, repair and maintenance decreased by 3.6%. Non-housing repair and maintenance was the main contributor to the fall, decreasing by 6.3%, this was the largest month-on-month fall since December 2012 when it fell by 9.0%. Housing repair and maintenance fell month-on-month by 0.9%.

When compared with the same period last year, repair and maintenance decreased by 6.9%, the largest decrease since December 2012 when it fell by 7.4%. There were falls in both housing and non-housing components of 4.6% and 9.3% respectively.

Table 2 provides a summary of growth rates across the different types of construction work in March 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 private industrial work
• all work types within repair and maintenance reported month-on-month and year-on-year decreases

Figure 8 shows the contribution of each sector to output growth in the construction industry between Quarter 4 (Oct to Dec) 2015 and Quarter 1 (Jan to Mar) 2016. In Quarter 1 (Jan to Mar) 2016, all work types except public and private housing saw decreases in output. The largest downwards contribution came from infrastructure.

Figure 9 shows the contribution of each sector to output growth in the construction industry between March 2016 and February 2016. In March 2016, all work types except private industrial saw decreases in output. The largest downwards contribution came from non-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 March 2016 was 71.4% of questionnaires, accounting for 78.7% 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 75 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 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. 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 2012. 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 2 (Apr to June) 2015 data:

Construction growth = 1.4
Weight in GDP = 0.059 (59/1000)
Effect on GDP = 1.4 * 0.059 = 0.08 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 = 0.148*0.4 = 0.0592 or 0.1 to 1 dp
Construction = 0.059*0.9 = 0.0531 or 0.1 to 1 dp
IoS = 0.786*0.1 = 0.0786 or 0.1 to 1 dp

Table 3 shows the latest monthly and revised quarterly output figures that fed into the GDP Preliminary Estimate release for Quarter 1 (Jan to Mar) 2016 published on 27 April 2016.

The Quarterly National Accounts published on 27 April 2016 contained an estimate for quarterly construction of a decrease of 0.9%. This estimate has been revised within this release based upon updated survey responses and is now estimated to have decreased by 1.1%.

Construction output fell by 3.6% between February 2016 and March 2016, the fastest monthly fall since December 2012. The main contributions to the decline came from a contraction in non-housing repair and maintenance (making a contribution of -1.1 percentage points on the month), while private commercial work (-1.0 percentage points) and infrastructure (-0.8 percentage points) also fell. This follows contractions in total output of -0.9% and -0.4% in February 2016 and January 2016 respectively.

These successive monthly contractions mean that on the quarter, construction output fell by 1.1% in Quarter 1 (Jan to Mar) 2016, following growth of 0.3% in Quarter 4 (Oct to Dec) 2015. This fall in construction in the latest quarter put downward pressure on GDP growth, which slowed to 0.4% in Quarter 1 (Jan to Mar) 2016. The fall in construction output in the first quarter of 2016 is broadly consistent with the Markit/CIPS UK Construction Purchasing Managers’ Index. This has fallen since the start of 2016 to 52.0 in April, which is its lowest reading since June 2013.

Looking over a longer period shows a similar weakness in output. Comparing March 2016 with March 2015, construction output decreased by 4.5%, the largest fall since March 2013 when construction output fell by 6.1%. Falls in repair and maintenance and infrastructure have more than offset the growth in new private housing work over this period.

The increase in growth in construction output associated with new private housing activity has come alongside a continued price pressure in the housing market. The ONS House Price Index indicated UK house prices increased by 7.6% in the year to February 2016, down from 7.9% in the year to January 2016. This is consistent with the Nationwide report, which indicates that UK house prices increased by 5.7% in the year to March 2016, up from 4.8% in the year to February 2016.

The continued strength of house price inflation has coincided with a sharp increase in demand, shown by a 41.5% increase in the seasonally adjusted number of residential property transactions between February 2016 and March 2016. This was 69.7% higher compared with the same month last year according to HM Revenue and Customs. However, part of this large increase in property transactions is likely to be as a result of the change in stamp duty rates for buy-to-let properties on 1 April 2016, which may have encouraged individuals to bring forward housing transactions. The Bank of England credit conditions survey for Quarter 1 (Jan to Mar) 2016 also cited increased demand for secured lending for house purchases.

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 1.1% and by 0.4% in the EU28 in February 2016 compared with January 2016. The Great Britain estimate for February 2016 showed that construction output decreased by 1.0%. 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 2012 = 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 increased by 0.3% in March 2016 compared with February 2016 and increased by 9.1% compared with March 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 web page.