Construction output in Great Britain: May 2016

The reporting period for this release covers the calendar month of May 2016; therefore, the data refers to the period prior to the EU referendum.

In May 2016, output in the construction industry was estimated to have decreased by 2.1% compared with April 2016. Both all new work and repair and maintenance reported decreases, falling by 2.6% and 1.4% respectively.

Within all new work, there were decreases in all work types, except infrastructure. The main contribution to the decrease came from private new housing.

Within repair and maintenance (R&M) there were falls in all work types.

Compared with May 2015, output in the construction industry decreased by 1.9%.

The underlying pattern, as suggested by the 3-month on 3-month movement in output in the construction industry, decreased by 2.1%. This was the third consecutive month of 3-month on 3-month falls.

These estimates contain data which are consistent with the Quarter 1 (Jan to Mar) 2016 Quarterly National Accounts dataset (which is consistent with Blue Book 2016). Revisions in the data are due to several factors, including the incorporation of late data, and re-referencing indices to 2013 = 100 to align with the National Accounts outputs. Other methodological changes, such as a change in outlier treatment, are also included.

Each component of GDP has a weight within GDP based on its value in 2013. Construction has a weight of 59 in 2013 and contributes 5.9% to GDP. This is unchanged from its contribution in 2012.

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, May 2016 datasets. In these tables, you will find chained volume estimates back to Quarter 1 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 at the Northern Ireland Statistics and Research Agency (NISRA).

National Statistics status

On 11 December 2014 the UK Statistics Authority announced its decision to suspend the designation of Construction price and cost indices 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.

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.

In May 2016 all work:

• decreased by 2.1% compared with April 2016

• decreased by 1.9% compared with May 2015

• decreased by 2.1% in the 3 months (March 2016, April 2016, May 2016) compared with the previous 3 months (December 2015, January 2016, February 2016)

• decreased by 1.7% in the 3 months (March 2016, April 2016, May 2016) compared with the same 3 months a year ago

Figure 1 shows the 2 main components of all work. The monthly series for construction output is volatile and can be split into several distinct periods. The early period shows that after a rise in output in early 2010, the level remained fairly consistent until early 2012 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, showing an underlying pattern of growth. Between mid-2014 and May 2016 there have been periods of growth and contraction.

Figure 2 looks at the main components of all new work. There was sustained growth in new housing from early 2013 to late 2014; however, after a contraction in mid-2015, there was a return to growth at the end of the year. The picture in 2016 is one of contraction with all months, except February 2016, which showed decreases.

Infrastructure continues to be volatile, with periods of expansion and contraction throughout the time series. In May 2016 there was an increase of 0.6% which is the first month-on-month increase since December 2015. On the year there was a fall of 10.3%, which is the fifth consecutive month of year-on-year decreases.

Other new work has been fairly flat since early 2012; however, there was a decrease of 3.4% in May 2016 compared with April 2016, while there was a fall of 0.9% compared with May 2016.

The 2 components of all new housing are shown in Figure 3. It shows that private new housing is the main contributor, accounting for approximately 87% of the total (based on May 2016 data). In May 2016, total new housing decreased by 3.2% compared with April 2016, with both public and private new housing falling by 0.6% and 3.5% respectively. This is the third consecutive period of month-on-month falls in total new housing, which accounts for approximately 22% of all new work, with private new housing alone accounting for approximately 19% of all new work. Total housing has contributed 0.7% of the 2.1% fall in monthly output.

Looking at the year-on-year picture, there was no growth in total housing when compared with May 2015. There was an increase of 3.7% in private new housing, offset by a fall of 18.9% in public new housing. There have been 38 consecutive periods of year-on-year growth in private new housing, while public new housing has seen a run of 13 periods of contraction.

Figure 4 examines the 2 main components of repair and maintenance. The level of housing repair and maintenance has remained around the £2 billion mark since the monthly series began, whereas non-housing repair and maintenance increased between 2010 and the middle of 2014 and has remained around that level since.

In May 2016, there was a fall of 1.4% in repair and maintenance compared with April 2016. There were falls of 1.4% and 1.3% respectively in housing and non-housing repair and maintenance.

When compared with the same period last year, repair and maintenance decreased by 0.4%. There was a fall of 1.2% in housing repair and maintenance which was offset by an increase of 0.5% in non-housing repair and maintenance.

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

• there were month-on-month decreases in all work types except infrastructure

• within all new work there were year-on-year falls in public new housing, infrastructure, public other new work and private industrial work

• within all repair and maintenance there was a year-on-year decrease in public housing repair and maintenance, while private housing and non-housing repair and maintenance showed increases

Figure 5 shows the contribution of each sector to output growth in the construction industry between May 2016 and April 2016. In May 2016, all work types except infrastructure contributed to the decrease in construction output. The largest downwards contribution came from private housing work, almost twice as much as any other work type.

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 May 2016 was 72.1% of questionnaires, accounting for 81.7% 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 77 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 main reference tables. 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 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, we 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 0.0 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 0.9 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 2 shows the latest monthly and revised quarterly output figures that fed into the Quarterly National Accounts release for Quarter 1 2016, published on 30 June 2016.

The Quarterly National Accounts, published on 30 June 2016, contained an estimate for quarterly construction of a decrease of 0.3%. This estimate has not been revised within this release.

Construction output fell by 2.1% between April 2016 and May 2016, following growth of 2.8% in April and alternating periods of contraction and expansion throughout 2015 and 2016. The largest contribution to the fall in May 2016 came from new private housing (making a contribution of -0.7 percentage points on the month), while infrastructure was the only sector to show an increase in output (rising by 0.6%).

The fall in May 2016, taken together with the strength of April’s figures, continues a longer trend of broadly flat output growth since the start of 2015, in contrast to the strength in output growth seen between the second half of 2013 to the end of 2014. Looking over an annual period – between May 2015 and May 2016 – construction output fell by 1.8%. Output in Quarter 1 (Jan to Mar) 2016 also remains 1.4% below levels seen in Quarter 1 (Jan to Mar) 2008, just before the economic downturn.

The Bank of England’s Agents’ Summary of Business Conditions for May 2016 continued to report that a skills shortage hampered growth in construction output, echoing findings in the RICS construction market survey for Quarter 1 (Jan to Mar) 2016. The RICS report also identified planning delays and financial constraints as drags on output.

The fall in new housing output is in line with relatively weak demand for housing. HMRC reports that residential transactions in May 2016 were 11.9% lower than in the same period last year, although they did increase by 1.5% between April 2016 and May 2016.

In terms of house prices, the picture for April 2016 is of stable, positive house price growth. The ONS House Price Index for April 2016 reported an 8.2% increase in house prices in the year from April 2015, just down from the 8.5% increase in the year to March 2016. The average house price was £1,300 higher than in the previous month. This is supported by Nationwide and Halifax house price data, which reported annual house price growth in the year to April 2016 of 4.9% 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 28 member states of the European Union (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, published by Eurostat on 20 June 2016, showed that construction output in the euro area (EA19) decreased by 0.2% and increased by 0.4% in the EU28 in April 2016 compared with March 2016. The Great Britain estimate for April 2016 showed that construction output increased by 2.8%. 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 July 2016, showed provisional estimates of construction output decreased by 0.8% in May 2016 compared with April 2016 and increased by 2.8% compared with May 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.