Construction output in Great Britain: October 2018 and new orders July to September 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 December 2018

Cyhoeddiad nesaf:
11 January 2019

1. Main points

  • Construction output decreased by 0.2% in October 2018 compared with strong growth of 1.7% in September 2018.

  • The decrease in October 2018 was driven by declines in infrastructure (down 3.7%), public new housing (down 8.1%) and total repair and maintenance (down 0.8%); the largest contributor offsetting these decreases was private new housing, which grew by 2.4%.

  • Despite the slight month-on-month decline, construction output in the three months up to October 2018 was 1.2% higher than the previous three-month period; this growth was slower than in recent months, with a steady decline being seen from a 2018 high of 3.0% growth for the equivalent series in July 2018.

  • A historic high level of £9,221 million in the new work chained volume measure seasonally adjusted series was reached in October 2018; this represents the highest value seen since monthly records began in January 2010.

  • New orders grew by 3.4% quarter-on quarter in July to September 2018, with a strong increase in public other new work of 31.9% helping offset a 5.3% decline in housing new orders; despite this increase, levels remain below those typically seen over the last five years of new orders data.

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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: September 2018 publication released on 9 November 2018, this publication contains no revisions to the back series. However, the Quarterly national accounts, UK: July to September 2018, set to be released on 21 December 2018, will include revisions to the quarterly path for construction output from January 2017 onwards. The next release of the Construction output in Great Britain, to be released on 11 January 2019, will include revisions to the construction output monthly path from January 2017 onwards to be consistent with the Quarterly national accounts, UK: July to September 2018.

We use methods 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 methods, and other recent improvements, can be found in Improvements to construction statistics: Addressing the bias in early estimates of construction output, June 2018 published on 4 June 2018.

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3. Construction output in October 2018

Construction output decreased by 0.2% in October 2018 compared with September 2018. This was driven by declines in infrastructure and public new housing, which fell by 3.7% and 8.1% respectively. The main factor offsetting these declines was a growth in private new housing, which grew by 2.4%.

The rolling three-month time series provides a more comprehensive picture of the underlying trends within the industry, compared with the more volatile monthly series, both of which are 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 rolling three-month series to October 2018. This growth means that October 2018 represents a new historic high in the rolling three-month chained volume measure, seasonally adjusted data.

In contrast, September 2018 still represents an all-time high in the monthly all work chained volume measure, seasonally adjusted series at £13,995 million. Despite this decline, in October 2018, the monthly series is still 3.8% higher than its value one year ago, with the all work value of construction output at £13,970 million.

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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, all new work, and repair and maintenance have followed a broadly similar pattern. Both repair and maintenance, and all new work have risen steadily.

After strong growth in the previous month of output, both all work, and total repair and maintenance have seen a decline in October 2018, with all work declining by 0.2%. In contrast, all new work saw a 0.2% growth in the same period, reaching a historic monthly chained volume measure, seasonally adjusted high of £9,221 million.

Figure 3 shows the difference in the growth from the different construction sectors for the period August to October 2018 in comparison with the period May to July 2018, taken from our seasonally adjusted, chained volume measure series.

Construction output in the most recent three-month period was buoyed by September 2018’s strong performance and increased by £514 million period-on-period. This was driven largely by private housing new work, which grew by £365 million, and infrastructure, which grew by £215 million. Significant growth was also seen in non-housing repair and maintenance, which increased by £192 million in the three-month on three-month series.

These helped offset the fall in private housing repair and maintenance, which fell by £356 million in August to October 2018 in comparison with the previous three-month period. This was the largest single decrease in absolute value of output. Falls were also seen in private industrial and private commercial new work, which decreased by £68 million and £63 million respectively.  

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 £25 million in October 2018.

The biggest month-on-month growths were seen in private new housing, which grew by £75 million, and public other new work, which grew by £40 million compared with September 2018.

These growths were offset by declines in infrastructure and public new housing, which decreased by £69 million and £49 million respectively. These, combined with reductions in private housing, and non-housing repair and maintenance outputs of £26 million and £31 million respectively, were the major forces leading to the overall decline.

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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 £13,970 million in October 2018 in the seasonally adjusted, chained volume measure. This was driven by the fall in infrastructure work to £1,774 million and the fall in public new housing to £547 million. These decreases were also offset by a growth in all new work, which hit a historic high of £9,221 million.

In comparison with October 2017, construction output grew 3.8%. This month-on-year increase occurred primarily because of a 5.1% increase in all new work along with growth of 1.4% in repair and maintenance. The most notable contributions to month-on-year growth came from private housing new work, and non-housing repair and maintenance, which grew by 10.6% and 6.8% respectively. In contrast, compared with the same period in 2017, the largest depressant factor on growth was the decrease in private housing repair and maintenance, which fell by 6.3%.

Looking at the most recent three-month on previous three-month series, the growth seen has been steadily weakening since its 2018 peak of 3.0% in July 2018, sitting at 1.2% as of October 2018. Although new work is still increasing, the impact of these increases has been softened by a decline in repair and maintainance of 1.0% in the most recent period.

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6. New orders

As seen in Figure 5, the value of total construction new orders remained broadly stable since 2013, until the large one-off increase in Quarter 3 (July to Sept) 2017. This was caused by the awarding of several high-value contracts awarded for the construction of High Speed 2 (HS2). Following this, the series has decreased and despite a recovery in the most recent quarter, levels remain below those generally seen in the past five years.

The all new work series recovered slightly in Quarter 3 2018 after three consecutive quarters of decline, growing 3.4% relative to Quarter 2 (Apr to June) 2018. This growth was driven by all other work, which grew by 7.7%, more than offsetting the 5.3% decline in all new housing during the same period.

The main contributors to growth were public other new work, which increased by 31.9% in the latest quarter following a sharp contraction in Quarter 2 2018, and a 10.4% rise in private commercial new work. On the public side, this represents the government investing in offices and related buildings in London (as can be seen in Table 6). Outside London, spending on public other new work broadly fell period-on-period. The overall growth in public other new work was enough to offset a 9.4% decline in infrastructure new orders, which fell back following strong growth in Quarter 2 2018. Table 2 lays these changes out in greater detail.

When looking at Quarter 3 2018 compared with the same period one year earlier, most types of work are significantly down. This is driven by both a fall in new housing, private and public, and a large decrease in all other work. However, the fall in the all other work series of 36.0% year-on-year is driven almost entirely by the drop in infrastructure work by 68.0%, as Quarter 3 2017 featured a large number of high-value HS2 contracts. Public other new work is the only type of work to show an increase, at 11.4% based on the most recent quarter on a year earlier.

When comparing the period Quarter 4 (Oct to Dec) 2017 to Quarter 3 2018 with the same period a year earlier, all components of the new orders series apart from private new housing are lower in the most recent period. The decline of 13.1% in all new work is driven largely by a decline in all categories of all other work, as housing is relatively flat between the two periods being compared, declining only 0.3%. All other work is down by 18.2% between the periods, with the HS2 orders again being a major factor, but other components also contributed to this decline. For example, commercial new orders are down 10.3% in the most recent four quarters against the previous period.

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7. Plans for future publications

As part of the Construction Statistics Development Programme and in line with our commitment to our strategy Better Statistics, Better Decisions (PDF, 1.4MB), we consult with various steering groups of industry experts on how we can make what we produce better meet the needs of our users. Two changes are planned for future publications.

The reference year for our new orders series will move from 2005 equals 100 to 2016 equals 100. This will make the reference year consistent with our construction output series and will provide users with a more up-to-date frame of reference. We anticipate we will make this change alongside our next publication of new orders data, for Quarter 4 (Oct to Dec) 2018, for the first time on 12 March 2019. This change will impact the index numbers (Table 1) and the constant price series we publish (Tables 2 and 3), as within the current publication these tables are presented on a 2005 equals 100 basis. This will not affect our growth rate series (Tables 8 and 9) or our current price data (Tables 4 to 6).

We also currently present sub-sector and regional data within our publication in Table 5 and Table 6. Table 5 is the value of construction output on a non-seasonally adjusted basis in current prices at the sub-sector level. Table 6 is the value of construction output on a non-seasonally adjusted basis in current prices at a regional level. Both tables are produced using the new orders dataset supplied by Barbour each quarter. To further improve clarity of our regional data, Tables 5 and 6 will be presented in a new format when we publish new orders for Quarter 4 2018 for the first time on 12 March 2019. The tables will still be published but will be available as a separate dataset within the construction dataset ONS webpage.

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10. 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 (updated 16 November 2018) 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

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: July to September 2018, set be released on 21 December 2018, VAT data will be included in construction output estimates for Quarter 2 (Apr to June) 2018 for the first time.

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

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11. Construction statistics engagement and development

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.

As part of the ongoing Office for National Statistics (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.

We have recently published a series of methodological articles to help communicate recent improvements.

The Construction statistics development: improving the understanding of new orders in the construction industry and the gap between output and new orders article was published on 30 October 2018. This explains and analyses the possible causes of differences in our construction output data and new orders data. An updated new orders in construction Quality and Methodology Information report was also published on the same day.

In addition to the October 2018 article, we also previously introduced methodological improvements to construction output estimates, detailed in two articles published on 4 June 2018:

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.

In September 2017, we released a summary article which outlined the impact of improvements to construction statistics, 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.

These improvements are driven by the UK Statistics Authority 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 in December 2014.

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