Brexit latest: Construction output unexpectedly falls in August

Output fell 1.5 per cent in the month and economists say the sector seems likely to be back in recession

The ONS said that it was unlikely to be a Brexit vote effect because there was a slump in infrastructure spending rather than private investment (AFP/Getty)

Output by Britain’s builders unexpectedly slumped in August according to the Office for National Statistics and City analysts predict that the sector has returned to recession.

Construction output fell 1.5 per cent in the month, following growth of 0.5 per cent in July.

City of London analysts had pencilled in a 0.2 per cent increase.

Fall in August

The construction index is notoriously volatile and lacks full national statistics status.

And the ONS said that it was “unlikely” to be a Brexit vote effect because the biggest contributor to the fall in the month was a slump in infrastructure spending rather than private investment.

The latest Markit/CIPs Purchasing Managers survey snapshot of construction for September indicates a return to growth.

Nevertheless, in the three months to August, compared with the previous three-month period, output was down 1.3 per cent under the ONS figures, signalling a clear slowdown.

Samuel Tombs of Pantheon said builders were “reeling from the Brexit vote” and that it looks likely the sector has relapsed into recession in the third quarter of the year, having contracted by 0.1 per cent in the second quarter.

“Barring revisions to the back data, construction output needed to have jumped 5.1 per cent on-month in September just to have been flat quarter-on-quarter in the third quarter,” said Howard Archer of IHS Global Insight.

The reading also confirms the impression that the run of much better than expected data on the economy in the wake of the Brexit vote is coming to an end.

Construction accounts for about 6 per cent of GDP and the sector now seems unlikely to make any contribution to growth in the third quarter of the year – and might even be a drag.

Most economists now expect the economy to have grown overall in the third quarter of the year, thanks to resilient services output and robust consumer spending, although there are still concerns about a drying up of business investment due to uncertainty created by the referendum result.

The ONS said that in August new construction work fell by 1.4 per cent and maintenance was down 1.5 per cent.

Within the new work category, infrastructure fell 5.1 per cent on July – and was down 9.3 per cent on the same month a year earlier.

The Chancellor Philip Hammond has signalled that he will announce a boost to infrastructure spending in the 23 November Autumn Statement to help the economy weather the impact of the Brexit vote.