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Comparison of construction downturns

An insight into the construction industry’s performance since 1979

The UK construction industry’s performance following the 2008 slowdown was initially similar to that experienced in previous slowdowns. However, what has been distinctive is the further decline in the level of output despite being 22 quarters past the initial downturn.

Construction output is an economic indicator that encompasses new building work as well as repair and maintenance work undertaken for both public and private corporations. Output in the industry is defined as all chargeable building and civil engineering work during a defined period excluding Value Added Tax (VAT), sub-contractor work and architectural fees. This includes completed public and private housing, office buildings that businesses intend to sell or lease, and the repair and maintenance of public and private housing. 

The contribution of construction to GDP

Construction output is a key component of the production approach to measuring Gross Domestic Product (GDP), accounting for 6.3% of the economy in Q2 2013. The construction industry grew steadily from 2000 to 2008, where total output increased by 17.1% between Q1 2000 and Q1 2008. However, the worsening economic conditions following the financial market shock of 2007 have had a marked negative effect on the industry’s output, which has fallen by 15.8% from Q1 2008 to Q2 2013.

Figure 1: Construction as a proportion of GDP (output measure) & construction industry breakdown, constant (2005) prices, seasonally adjusted

Figure 1: Construction as a proportion of GDP (output measure) & construction industry breakdown, constant (2005) prices, seasonally adjusted
Source: Office for National Statistics

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Comparing the impact of previous economic downturns

Between Q1 2008 and Q3 2009 output in the construction industry fell by 17.9%, contributing negatively to GDP growth, despite the industry accounting for a smaller proportion of the economy than the services and production industries.

A comparison of the economic downturns in the 1980s, 1990s and late 2000s shows that construction output during the recent economic downturn experienced an initial contraction similar in size to that of the 1980s, and underwent subdued growth following the contraction similar to that of the 1990s, as can be seen in Figure 2.

Figure 2: Construction output & GDP, constant (2005) prices, seasonally adjusted

Figure 2: Construction output & GDP, constant (2005) prices, seasonally adjusted
Source: Office for National Statistics

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Estimates for Q2 2013 show that output in the construction industry stood 15.8% below its Q1 2008 pre-downturn peak. This is broadly comparable with that of the 1990s, when over an equivalent period of twenty-two quarters output was 13.8% below its Q1 1990 pre-downturn peak. By contrast, over the equivalent period in the 1980s, output in the industry was similar to its pre-downturn peak by Q2 1979.

However, these figures must be put in context as the contraction in GDP was much more pronounced in the late 2000s when output fell by 7.2% from peak to trough, compared with 2.4% in the 1990 and 5.9% in the 1980s. Given the fall in output in the most recent economic downturn was greater, one would therefore expect construction output to have fallen to a greater extent, relative to previous downturns.

Analysis of subsectors within the construction industry

An analysis of construction output by type of work can help to explain the performance of the industry throughout the economic downturns in the 1980s, 1990s and 2000s. 

Figure 3: Change in new construction work over GDP peak to trough periods, Constant (2005) prices, seasonally adjusted

Figure 3: Change in new construction work over GDP peak to trough periods, Constant (2005) prices, seasonally adjusted
Source: Office for National Statistics

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The late 2000s contraction in construction output was caused in part by a fall of 38.2% in the building of new housing between Q1 2008 and Q3 2009. This fall has been more pronounced compared with the economic downturns of the 1980s and 1990s, when new housing fell by 10.1% and 33.1% respectively. Despite this initial decline, new housing has maintained its contribution to construction output, accounting for 29.4% of all new work in Q2 2013, up from 28.2% in Q1 2008.

Another key feature of the late 2000s was the decline in ‘new other private work’, which consists of private industrial activity (new factories, warehouses and oil, steel and coal facilities, etc.) and private commercial (new schools, offices, entertainment, garages, shops, agricultural, etc.). New other private work fell by 34.6% between Q1 2008 and Q2 2013, a noticeably sharper fall than in previous economic downturns. Despite this decline, it remains the largest contributor to the industry, accounting for 39.2% of all new work in Q2 2013 (though this has fallen from over half in Q1 2008). In contrast to the marked fall of output in most sub-sectors, the infrastructure and other public categories have been resilient, growing by 17.3% and 28.4% respectively over the same period.

In summary, it appears that the UK construction industry’s performance following the 2008 slowdown was initially similar to that experienced in previous slowdowns. What has been distinctive is the further decline in the level of output despite being 22 quarters past the initial downturn. This may be partially explained by structural changes occurring within the industry, as the fall in ‘other private work’ has been more pronounced during the latest slowdown than during the 1990s and 1980s slowdowns.

 

These statistics were compiled and analysed by the Macro Reporting & Analysis team in the Office of the Chief Economic Adviser Division. If you have any questions about the statistics, please contact sami.hamroush@ons.gsi.gov.uk. If you’d like to find out more about our construction statistics you can read our Output in the Construction Industry release. If you have any comments or suggestions, we’d like to hear them! Please email us at: macro@ons.gsi.gov.uk.

Categories: Business and Energy, Production Industries, Building and Construction, Output in the Construction Industry, Economy, National Accounts, National Income, Expenditure and Output
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