Worrying signs as construction output declines

Contributing £90 billion – around 6.7 per cent of total GDP – to the UK economy, the construction sector is one of the country’s most important industries.

There was good news in the shape of the manufacturing industry which - it was revealed yesterday - is expanding at its fastest rate since 2008 having recorded a seventh consecutive month of growth in November.

Worryingly, however, figures released yesterday by the ONS showed that, compared with June to August, the construction output between September to November fell by £779 million. If the OBR predictions in the Autumn Budget regarding economic growth are correct, the construction industry in the UK may slow further.

These findings are particularly concerning given that, of the 2.9 million people working in the construction sector, 800,000 are self-employed. Representing one in six of all those working for themselves, the construction industry presents one of the largest opportunities for people to go self-employed. It offers a clear path into work for school or university graduates looking to learn a vocational skill, or just people wishing to retrain in a new industry.

Within the ONS figures, both new work and maintenance declined between June and November which, in turn, will raise fear amongst the self-employed, who are already facing pressures on living standards and business costs.

Private commercial, infrastructure and repairs to housing contributed greatly to the overall decline. The £157 million decline will be concerning for self-employed people who typically spend more of their time commuting to develop their business or complete projects. And, following the departure of Lord Adonis from the National Infrastructure Commission in December, there may by further declines in infrastructure spending.

There was a sliver of good news within the figures, however, with private housing growing in value by £100 million. If this trend continues that may be good for the UK Government as it may help to deal with the housing issues that people are facing.

One of the biggest issues for voters presently is the price of housing. This means the construction industry is vital to the Government successfully delivering on this policy. If housing construction goes up, house price inflation can be dealt with.

With a very strong correlation to the overall health of the economy, it is relatively easy to explain why the construction sector is presently experiencing this overall decline. Many construction projects are funded by credit. However, during a recession such as the 2008 financial crisis, access to credit dries up because lenders were forced to tighten the purse strings.

The construction industry has major potential going forward with the growth of green technologies, the need to deal with housing issues and other major projects the Government covet highly, such as HS2.

It is an industry that provides the foundation for the UK economy, as well as providing so many people with opportunities to go self-employed. It is vital that both the public and private sector continue to train people so that the construction industry can begin to flourish again.

If the construction industry falters, issues such as house prices will not be dealt with. It is vital that the Government supports the construction industry and provides a business environment that will allow the self-employed to thrive within it.

Meet the author

Tom Purvis

Political and Economic Adviser

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