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Sharp drop in construction output

THE Scottish Building Federation has warned many firms in the sector face another harsh winter after official figures revealed a further sharp year-on-year drop in UK construction output in October.

GLOOMY OUTLOOK: The figures are bad news for the sector.
GLOOMY OUTLOOK: The figures are bad news for the sector.

Data published by the Office for National Statistics yesterday showed the volume of UK construction output in October was down 5.1% on the same month of last year. Although a significant drop, it is the least steep year-on-year fall since February.

Looking at the breakdown, the volume of new-build work in the UK construction sector in October was down 5.8% on a year earlier. Repair and maintenance, the other component of the construction output figures, showed a year-on-year drop of 3.7% in October.

Comparing the three months to October with a year earlier, the volume of UK construction output was down 9.7% on a year earlier. New-build work in the three months to October was down 11.8% on year earlier, with repair and maintenance 5.8% lower.

The ONS data showed a very sharp drop in new-build work for UK construction companies from the public sector.

Michael Levack, chief executive of the Scottish Building Federation, said: "Compared to the same period last year, new construction work has plummeted by 12% during the three months to October this year. Falls in public-sector output have been particularly dramatic, suggesting cuts to capital investment are now hitting the industry hard."

Referring to Chancellor George Osborne's autumn statement last week, Mr Levack said: "I welcome the Chancellor's commitment last week to redirect funding towards stimulating the construction industry, but those additional funds will take time to have any effect.

"Meanwhile, many building firms are facing the prospect of another harsh winter."

He also declared that construction firms needed to be given "much greater certainty about the future pipeline of work through a revised Scottish Infrastructure Investment Plan" from the Scottish Government.

Mr Levack, meanwhile, claimed some contractors with limited experience of operating in Scotland were making ill-judged tender bids, "which is undercutting firms with a much stronger Scottish track record".

He urged the UK Government to implement an immediate cut in value-added tax on building repairs and improvements.

The ONS figures, which are not adjusted for seasonal factors, show the volume of UK construction output rose by 8.3% between September and October. The ONS, however, says care should be taken about month-on-month movements because these can be affected by seasonal factors.

Howard Archer, chief UK economist at consultancy IHS Global Insight, took a more upbeat view of the latest construction output figures. He said: "Some rare recent good news on the construction sector saw output climb 8.3% month-on-month in October, after declines in both September and August."

However, he cautioned: "Even so, construction output was still down by 5.1% year-on-year in October."

He added: "October's improvement meant construction output was up by 0.7% in the three months to October compared to the three months to July, which opens the door to the construction sector making a very rare recent positive contribution to GDP (gross domestic product) in the fourth quarter. Construction activity was a major drag on UK GDP through the first three quarters of this year."

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