Monthly construction output decreased 1.4% in volume terms in June 2022, according to the Office for National Statistics. This is the first decrease since October 2021 (0.9%) following seven consecutive months of growth.
June鈥檚 decrease was a result of falls in both new work (2.0%) and repair & maintenance (0.2%). Output in private new housing was down 6.1% and private commercial new work was down 4.5%.
Meanwhile, May鈥檚 previously reported 1.5% increase in output has since been revised upwards to 1.8%. Numbers for both months were affected by the timing of the royal jubilee bank holiday, the ONS said.
鈥淚t is important to note that the platinum jubilee, and the move of the May bank holiday, led to an additional working day in May 2022 and two fewer working days in June 2022,鈥� it cautioned. 鈥淭herefore, this should be considered when interpreting the seasonally adjusted movements involving May and June 2022.鈥�
The level of construction output in June 2022 was 2.9% above the February 2020 pre-coronavirus pandemic level; repair & maintenance work was 12.6% above that level while new work was 2.2% below.
Despite the monthly decrease in June, for the second quarter as a whole (April to June) construction output increased by 2.3%, with increases seen in both new work (3.3%) and repair & maintenance (0.8%).
The 2.3% construction growth for the quarter failed to prevent the overall UK economy shrinking by 0.1% for Q2. Contraction of the UK economy was attributed to the massive machinery of Covid test & trace and vaccination programmes being wound down.
Total construction new orders decreased 10.4% in Q2 of 2022 compared with Q1, which was 聽the largest quarterly fall in construction new orders since Q4 2020 (11.7%).
The annual rate of construction output price growth was 9.6% in the 12 months to June 2022; this was the strongest annual rate of price growth since records began in 2014.
Gareth Belsham, director of the national property consultancy and surveyors Naismiths, said: 鈥淭he reversal has been sharp and painful. After seven straight months of uninterrupted growth, construction crunched into reverse in June 鈥� with the sector shrinking faster than any other part of the UK economy.
鈥淥nly the most optimistic observer would dismiss the switch from 1.8% growth in May to a 1.4% contraction in June as being solely down to building work stopping for the extended Jubilee Weekend.
鈥淲eakening sentiment in the wider economy is starting to squeeze the pipeline of new construction work. The total value of new orders placed shrank by 10.4% (拢1.36bn) between the first and second quarters of 2022.
鈥淥rders from housing developers have now fallen for three quarters in a row, and levels of private sector housebuilding shrank by a bruising 6.1% in June, following a rapid 7.5% expansion in May.
鈥淪uch volatility may be a short-term blip, and for now there鈥檚 still plenty to cheer in the data. New industrial work grew strongly in June and the construction industry as a whole grew by over 拢1bn in the second quarter compared to the first three months of 2022, marking the fastest quarterly rise since this time last year.
鈥淏ut the slowdown in new orders is a worry, as it suggests that after months of enjoying full order books, some builders鈥� future is looking less rosy.
鈥淪eparate data showed that in England and Wales during the second quarter of 2022 the number of construction firms going to the wall surged to double the level seen during the same period last year.
鈥淲ith construction prices rising by 9.6% in the year to June, their fastest level since records began, the combination of inflation and the rising risk of contractors going bust on the job is not a happy one 鈥� and once strong investment cases are being tested as increasing numbers of developers pause for thought before committing to build.鈥�
Simon Rawlinson, head of strategic research at Arcadis, said: 鈥淎gainst the background of a 0.1% contraction of UK GDP in the 2nd quarter, construction confounded expectations by continuing to expand by 2% in real terms in the second quarter.聽 Led by strong housing and infrastructure and soaring growth in the industrial sector, good performance by construction suggests that the investment side of the UK economy is proving more resilient than the consumption side. 聽聽Overall new build work expanded by 3% in 2Q, cancelling out a 3% contraction in the closely watched private housing RM&I market.
鈥淨uarterly output, the highest ever recorded in real terms at 拢44.75bn is likely to mark the high point of the cycle. Output data for June points to the beginning of a slowdown, with a 5% contraction in both housing and commercial.聽 However, this fall will include the effect of the Jubilee Bank Holiday.
鈥淟ooking forward, 聽new orders slipped by 10% in the quarter and are below the long-term trend.聽 The largest drop came in the commercial sector, whilst logistics maintains its winning streak.聽 There is now plenty of evidence that the cost impact of the Ukraine crisis has taken the steam out of the industry鈥檚 post Covid recovery, but so far, evidence points to a soft landing rather than a full-blown reversal.聽 Construction businesses need to plan to manage the effects of continuing inflation driven by high energy costs against the backdrop of a softening market.鈥�
Brian Berry, chief executive of the Federation of Master Builders (FMB) said: 鈥淐osts are up across the board for both builders and consumers alike which is affecting business confidence. With 98% of FMB members experiencing material cost increases builders are inevitably having to pass on these costs to consumers. The result is that householders are starting to hold back with many households increasingly concerned about rising energy prices and the threat of a recession later in the year.
"With the government at a standstill, we won鈥檛 see any ambitious announcements to help support the sector until September with the new prime minister will be announced. In the meantime, the Conservative leadership candidates need to be explaining what they intend to do help the construction sector boost economic growth. Cutting the rate of VAT from 20% to 5% or below on all repair, maintenance, and improvement work would be a welcome start to help boost building work all across the country and help people insulate their homes ahead of further rising energy bills.鈥� 聽
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