Construction output in Great Britain: Apr 2016 and new orders Jan to Mar 2016

Construction output at current price and chained volume measures seasonally adjusted by public and private sector.

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Contact:
Email Melanie Richard

Release date:
10 June 2016

Next release:
15 July 2016

1. Main points

In April 2016, output in the construction industry was estimated to have increased by 2.5% compared with March 2016.

All new work increased by 2.9% and all repair and maintenance increased by 1.9%.

Compared with April 2015, output in the construction industry decreased by 3.7%.

The underlying pattern as suggested by the 3 month on 3 month movement in output in the construction industry decreased by 2.1%.

New orders for the construction industry in Quarter 1 (Jan to Mar) 2016 were estimated to have decreased by 1.2% compared with Quarter 4 (Oct to Dec) 2015 and decreased by 1.2% compared with Quarter 1 (Jan to Mar) 2015.

The second estimate of UK gross domestic product (GDP) for Quarter 1 (Jan to Mar) 2016 published on 26 May 2016 included an estimate of construction which showed a decrease in output of 1.1% in Quarter 1 (Jan to Mar) 2016. This estimate has been not been revised in this release. More information on revisions are included in the Background notes section of this bulletin.

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2. Things you need to know about this release

There are no revisions to earlier periods in this release.

Output is defined as the amount charged by construction companies to customers for the value of work (produced during the reporting period) excluding VAT and payments to sub-contractors.

Construction output estimates are a short-term indicator of construction output by private sector and public corporations within Great Britain. Output estimates are produced and published at current prices (including inflationary price effects) and at chained volume estimates (with inflationary effects removed) both seasonally adjusted and non-seasonally adjusted.

Chained volume measures are also described as volume. Construction output is used in the compilation of the output approach to measuring gross domestic product (GDP).

Detailed estimates along with a longer run of time series data are available to download in the Output in the Construction Industry, April 2016 datasets. In these tables, you will find chained volume estimates back to Quarter 1 (Jan to Mar) 1997 and monthly estimates back to January 2010. Current price non-seasonally adjusted data are available back to Quarter 1 (Jan to Mar) 1955. More information on these statistics can be found in the “definitions and explanations” section in the background notes.

The data published in this release cover construction estimates for Great Britain. Construction output estimates for Northern Ireland can be obtained from the Central Survey Unit at NISRA.

National Statistics status

On 11 December 2014 the UK Statistics Authority announced its decision to suspend the designation of Construction Output and New Orders as National Statistics due to concerns about the quality of the Construction Price and Cost Indices used to remove the effects of inflation from the statistics.

We took responsibility for the publication of the Construction Price and Cost indices from the Department of Business Innovation and Skills (BIS) on 1 April 2015, introducing an interim solution for measuring output prices in June 2015 for all periods from January 2014 onwards. We are currently developing a long-term solution for the deflation of construction statistics.

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3. Output in the construction industry – April 2016

In April 2016:

  • all work increased by 2.5% compared with March 2016; this was the largest month-on-month increase since January 2014 when it increased by 3.8%
  • all work decreased by 3.7% compared with April 2015
  • in the 3 months (February 2016, March 2016, April 2016) compared with the previous 3 months (November 2015, December 2015, January 2016) all work decreased by 2.1%
  • all new work increased by 2.9% compared with March 2016
  • repair and maintenance increased by 1.9% compared with March 2016

Figure 1 shows the 2 main components of all work; all new work and repair and maintenance. The chart shows that since the start of the monthly series in January 2010 the performance of the construction industry has been volatile and can be split into several distinct periods. Initially output increased in the early part of the time series before falling sharply in late 2011. From January 2013 to December 2014, output increased gradually, showing an underlying pattern of growth. Between January 2015 to April 2016, output has shown periods of growth and contraction. The rise in April 2016 of 2.5% follows a weaker than expected March and the level in April is now similar to the level seen in February 2016.

Figure 2 looks at the main components of all new work. There was sustained growth in new housing from early 2013 until early 2015 and after several months of contraction in mid-2015 there was a return to growth in late 2015 into 2016. After a decrease in March 2016, there was an increase of 1.6% in April 2016.

Infrastructure shows volatility throughout the time series with periods of growth and contraction. There was a fall in April 2016 compared with March 2016 of 1.1%; this is the fourth consecutive month where infrastructure output has shown a contraction and it is now at its lowest level since December 2014. Compared with the same period a year ago, there was a decrease of 18.0% in infrastructure.

Since early 2012, other new work has remained fairly flat. After 2 months of contraction in February 2016 and March 2016, there was a return to month-on-month growth in April 2016 of 5.7%. When compared with April 2015, there was a decrease of 0.6%.

Figure 3 looks at the 2 components of total new housing. It shows that private new housing is the main contributor for the overall trend in total housing, accounting for approximately 86% of all new housing (based on April 2016 data). Private new housing showed growth of 2.7% in April 2016 compared with March 2016 and is now at its highest level at £2.2 billion since records began in January 2010. Public new housing fell by 4.4% in April 2016 compared with March 2016.

On the year, total housing increased by 0.9% compared with April 2015. The main contributor was private new housing which increased by 5.8%, offset by public new housing which decreased by 20.7%. This was the 12th consecutive period of year-on-year decreases in public new housing.

Figure 4 looks at the 2 main components of all repair and maintenance. The level of both housing and non-housing repair and maintenance has been fairly consistent over the time series with both contributing a similar amount to all repair and maintenance.

In April 2016 compared with March 2016, all repair and maintenance increased by 1.9%. Non-housing repair and maintenance increased by 4.1% while housing repair and maintenance fell by 0.1%.

There was a decrease of 3.3% in all repair and maintenance compared with the same period last year; housing and non-housing repair and maintenance reported decreases of 4.2% and 2.5% respectively.

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4. Focus on underlying growth in the construction industry

Monthly growth rates of construction output show that the performance of the construction industry is somewhat erratic or volatile. In order to remove some of this volatility and to provide you with an understanding of the underlying pattern within the data, 3 month on previous 3 month growth rates are provided and shown in Figure 5 alongside the monthly series.

In April 2016, there was an increase of 2.5% compared with March 2016 in all work, however, there was a decrease of 2.1% in the rolling 3 month on 3 month movement between March 2016 and April 2016.

On the year, there was a decrease of 3.7% in all work while there was a smaller decrease of 2.8% in the rolling 3 month on a year earlier series.

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5. Summary of growth rates for all work types

Table 1 provides a summary of growth rates across the different types of construction work in April 2016. Some main points from this table are as follows:

  • all work increased in April 2016 compared with March 2016 due to increases in both all new work and repair and maintenance
  • all work types reported month-on-month increases except public new housing, infrastructure and public housing repair and maintenance
  • there were year-on-year decreases in all work types except private new housing and private commercial work

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6. Contributions to growth

Figure 6 shows the contribution of each sector to output growth in the construction industry between April 2016 and March 2016. In April 2016, all main work types except infrastructure, total housing repair and maintenance, and public new housing saw an increase in output. The largest contribution to the increase came from non-housing repair and maintenance.

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7. The quality of the estimate of output in the construction industry

Output in the construction industry estimates are produced from the monthly business survey on the second Friday of the month, 2 months after the reporting month. Revised results, for previously published periods, are published in line with the National Accounts Revisions Policy. More information about the data content for this release can be found in the background notes.

Revisions are an inevitable consequence of the trade-off between timeliness and accuracy. The response rate in April 2016 was 71.7% of questionnaires, accounting for 78.1% of registered turnover in the construction industry. Therefore the estimate is subject to revisions as more data become available.

The monthly output in the construction industry time series now spans 76 months, however, you should note that this is the minimum time span recommended by Eurostat for seasonal adjustment. While the seasonal pattern is generally established after 60 months in a monthly time series, there is still potential for increased revisions until the seasonal pattern has matured. In future publications, we may see larger than average revisions to March 2016 and April 2016 as this is the first time since the monthly series began in 2010 that Easter has fallen wholly in a March. When we have more data available in the future we will be able to review the impact of Easter over a longer time span.

All estimates, by definition, are subject to statistical uncertainty and for many well-established statistics, we measure and publish the sampling error associated with the estimate, using this as an indicator of accuracy. For construction output we publish sample and non-sample errors in Table 11 of the Output in the construction industry dataset. It should be noted that we are continually working on methodological changes to improve the accuracy of the construction output estimates, progress on these can be found on the ONS continuous improvement page on our website.

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8. Construction estimates in gross domestic product

Construction estimates are a main component of the output approach to measuring GDP, along with the estimates of services, production and agriculture. As an aid to you, the short-term economic indicator releases that directly feed into GDP include an additional table of the GDP components. This table should help to inform you of the relationship between the individual components which comprise GDP output. The publication dates and the quarterly growths of the individual GDP components are shown below.

Each component of GDP has a weight within GDP based on its value in 2012. Construction has a weight of 59, which means that it is 59 parts of the 1,000 that make up total GDP.

To determine the effect each component has on GDP multiply the component growth by its weight in GDP.

An example using quarter 2 (Apr to June) 2015 data:

Construction growth = 1.4
Weight in GDP = 0.059 (59/1000)
Effect on GDP = 1.4 * 0.059 = 0.08 or 0.1 to 1 decimal place (dp)

Revisions to components and the effect on GDP can be calculated using the same process. As a general rule there are no revisions to GDP when the component revisions are:

Index of Production (IoP) = between 0.3 and -0.3
Construction = between 0.9 and -0.9
Index of Services (IoS) = 0.0 (all values above or below 0.0 effect GDP due to the high weight of IoS in GDP)

Because;

IoP = 0.148*0.4 = 0.0592 or 0.1 to 1 dp
Construction = 0.059*0.9 = 0.0531 or 0.1 to 1 dp
IoS = 0.786*0.1 = 0.0786 or 0.1 to 1 dp

Table 2 shows the latest monthly and revised quarterly output figures that fed into the second estimate of GDP for Quarter 1 (Jan to Mar) 2016 published on 26 May 2016.

The second estimate of GDP published on 26 May 2016 contained an estimate for quarterly construction of a decrease of 1.1%. This estimate has not been revised within this release.

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9. New orders for construction – Quarter 1 (Jan to Mar) 2016

In Quarter 1 (Jan to Mar) 2016 the volume of all new orders:

  • decreased by 1.2% compared with Quarter 4 (Oct to Dec) 2015
  • decreased by 1.2% compared with Quarter 1 (Jan to Mar) 2015

There were decreases in the volume of new orders for private new housing, public other new work and private commercial work while all other work types showed increases.

The volume of new orders in new housing decreased by 14.6% between Quarter 4 (Oct to Dec) 2015 and Quarter 1 (Jan to Mar) 2016.

Private new housing decreased by 17.2% to a level of £2.7 billion: this is the lowest level since Quarter 1 (Jan to Mar) 2013 when it was £2.6 billion.

Public new housing decreased by 6.1%, however, it should be noted that the weight of public new housing is small at only 14% of total new housing (based on Quarter 1 (Jan to Mar) 2016 data).

The volume of infrastructure new orders increased by 27.4% in Quarter 1 (Jan to Mar) 2016 compared with Quarter 4 (Oct to Dec) 2015. Compared with the same period a year ago infrastructure increased by 15.8%. Infrastructure is a particularly volatile series due to the range of products such as electricity, gas, road, rail etc included within this type of work, therefore large movements are not unusual.

The volume of all new orders in Quarter 1 (Jan to Mar) 2016 decreased by 1.2% compared with the same period a year ago. There were decreases in all work types except public new housing, infrastructure and private commercial work.

You should note that there is a time lag between how long an order turns into output (if at all) and therefore an assumption that improved new orders data will result in an improved output picture is a difficult assumption to make.

Further, you should note that there may be some discontinuity in the data around Quarter 3 (July to Sept) 2013 where the Barbour ABI data were used for the first time to compile these statistics.

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10. Economic context

Construction output rose by 2.5% between March and April 2016, the fastest monthly rise since January 2014. This follows contractions in total output of -3.6% and -0.9% in March 2016 and February 2016 respectively. The main contributions to the rise came from growth in non-housing repair and maintenance (making a contribution of 0.7 percentage points on the month), while private commercial work (0.6 percentage points) and other public work (0.6 percentage points) both fell.

Despite the latest monthly increase in construction output, looking over a longer period shows weakness in output. Comparing April 2016 with April 2015, construction output decreased by 3.7%. Falls in infrastructure, and repair and maintenance have more than offset the growth in new private housing work over this period. The Bank of England’s Agents’ Summary of Business Conditions cited reports of skills shortages constraining growth rates in the industry. As well as labour shortages, the RICS construction market survey also reports that financial constraints and planning delays may be constraining growth.

Output of new private housing continues to grow, despite a fall in demand in the latest month. According to HM Revenue and Customs there was a 45.2% decrease in the seasonally adjusted number of residential property transactions between March 2016 and April 2016. This was the lowest level of residential property transactions since March 2013, but follows a 41.5% increase between February 2016 and March 2016. The large movements between February 2016 and April 2016 are likely to be a result of the change in stamp duty rates for buy-to-let properties on 1 April 2016, which may have encouraged individuals to bring forward housing transactions.

The increase in demand for residential properties in March 2016 has come alongside increased price pressure in the housing market. The ONS House Price Index indicated UK house prices increased by 9.0% in the year to March 2016, up from 7.6% in the year to February 2016. This is consistent with the Nationwide report, which indicates that UK house prices increased by 5.7% in the year to March 2016, up from 4.8% in the year to February 2016. Halifax also reported that house prices increased 10.1% in the year to March 2016, up from 9.7% in the year to February 2016.

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11. International perspective

Output in the construction industry follows the Eurostat Short Term Statistics (STS) regulation for production in construction. Before any comparisons are made with the Euro area or EU28, it is worth noting that the UK is the only member state to follow the A method for compiling production in construction statistics.

The latest release of production in construction showed that construction output in the euro area (EA19) decreased by 0.9% in March 2016 and decreased by 1.4% in the EU28 compared with February 2016. The Great Britain estimate for March 2015 showed that construction output decreased by 3.6%. It should be noted that an accurate comparison cannot be made as Eurostat data are calculated on a 2010 = 100 basis, while Great Britain data are calculated on a 2012 = 100 basis.

Outside of the EU, the US Census Bureau release Value of construction put in place published on 1 June 2016, showed provisional estimates of construction output in April 2016 decreased by 1.8% compared with March 2016 and increased by 4.5% compared with April 2015.

International comparisons

International construction comparisons are compiled by Eurostat. The estimates produced in this bulletin are included in these comparisons. Further information can be found on the Eurostat web page.

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12 .Background notes

  1. What’s new

    Estimates for May 2016 published on 15 July 2016 will incorporate the re-referencing of the indices to 2013 = 100 to align with the National Accounts outputs. This change will result in changes to the level of construction output but growth rates should be maintained.

  2. Statistical continuous improvement

    In March 2012, as part of our Statistical Continuous Improvement programme, we published a Review of Sample Design and Estimation Methodology for Construction Output. This report evaluated the sample design and estimation methods used on the Construction Output Survey. The conclusions of the review were that the current sample is performing well and that the current methodology for estimation within the survey produces the smallest standard error.

    In response to user feedback and in line with the announcement made in the article ”Improvements to the methods used to compile Output in the Construction Industry statistics”, this statistical bulletin now contains monthly seasonally adjusted chained volume estimates. Due to the potential for confusion when comparing constant price (volume) and chained volume measures, all references to constant price series for construction output have been removed from this, and future bulletins.

  3. Understanding the data

    I. Interpreting the data

    When making comparisons it is recommended that users focus on chained volume measures or constant price (volume), seasonally adjusted estimates as these show underlying movements rather than seasonal movements.

    Construction output estimates are subject to revision because of:

    • late responses to the Construction Output Survey
    • revisions to seasonally adjusted factors which are re-estimated every quarter
    • annual updating of the Inter-Departmental Business Register (IDBR) that forms the basis of the sampling for the Construction Output Survey - this occurs in April and can have an effect on the results published in May

    II. Definitions and explanations

    Definitions of terminology found within the main statistical bulletin are available on our website.

  4. Use of the data

    Output in the construction industry estimates are widely used both internally and externally and have been identified by legal requirement and user engagement surveys.

    The main users of data from the output of the construction industry dataset are:

    • UK National Accounts
    • Eurostat, the statistical office of the European Union, in order to comply with statutory legislation on short-term business statistics (STS). Short-term business statistics provide information on the economic development of four major domains: industry, construction, retail trade and other services
    • industry analysts requiring estimates of the construction industry output of Great Britain
    • trade associations making UK and international comparisons and to forecast trends in the construction industry
    • other government departments including; the Department for Business, Innovation and Skills (BIS), HM Treasury (HMT), Department for Communities and Local Government (DCLG) and the Office for Budgetary Responsibility (OBR)

    As well as being a main indicator of the performance of construction companies, the results of the survey also contribute to the estimate of the gross domestic product of the UK, contributing approximately 5.9% of GDP.

    More information on the uses made of short-term economic statistics is available on our website.

  5. Methods

    Our monthly construction output survey measures output from the construction industry in Great Britain. It samples 8,000 businesses, with all businesses employing over 100 people or with an annual turnover of more than £60 million receiving a questionnaire by post every month.

    Estimates are based on output data collected through the monthly Construction Output Survey. Response rates at the time of publication are included for the current month, and the 3 months prior. The response rates for those historical periods are updated to reflect the current level of response, incorporating data from late returns. There are 2 response rates included, with 1 percentage for the amount of turnover returned, and the other percentage for the amount of questionnaire forms.

    Since the 1950s, new orders in c onstruction data had been collected from a sample survey of businesses; originally monthly and then quarterly. There were some known quality issues with the survey data as:

    • the coverage of the survey was unknown
    • new orders allocated to regions were not always accurately recorded

    The new orders data are now supplied under contract by Barbour ABI. Barbour ABI provide us with improved coverage and regional splits of new orders in construction data.

  6. Quality

    The latest Quality and Methodology report for the Output of the Construction Industry estimates can be found on our website.

    The latest Quality and Methodology report for New Orders in the Construction Industry estimates can be found on our website.

  7. Revision policy

    Construction output conforms to the standard National Accounts Revisions policy, which can be found on our website. In line with this, the construction output release for April 2016 contains no revisions to earlier periods.

    Figures for the most recent months are provisional and subject to revision in light of (a) late responses to the monthly business survey MBS (b) revisions to seasonal adjustment factors which are re-estimated every period and (c) improved treatment of outliers.

    New orders data has a revision period back to Quarter 2 (Apr to June) 2013 and is not covered by the National Accounts Revisions Policy due to not directly feeding the national accounts.

  8. Revisions

    One indication of the reliability of the main indicators can be obtained by monitoring the size of revisions. Analysis of the previously published quarterly seasonally adjusted chained volume measure series has shown that revisions to construction data are small. Generally these quarterly revisions are less than 1 percentage point when compared with the final revised period 5 quarters after initial publication. This indicates that the published estimates are a reliable snapshot of the output in the industry at the date of publication.

    The size and pattern of revisions for both output and new orders data which have occurred in the open period can be found in the 1 month and 3 month revisions triangles datasets. Please note that these indicators only report summary measures for revisions. The revised data may be subject to sampling or other sources of error. Details about this revisions material can be found on our revisions page.

    It should be noted that due to seasonal adjustment taking place on a short span of data points used to interpret the seasonal effects, there is potential for increased revisions until the seasonal pattern is established within the time series. The seasonal pattern is generally established after 60 months in a monthly time series.

    Please note that a monthly seasonally adjusted chained volume series is not available pre-2010. This is due to monthly data not being available for this period. These data are a requirement for creating previous year’s prices from which chain linked volume measures are created:

    • the coverage of the survey was unknown
    • new orders allocated to regions were not always accurately recorded

    The new orders data are now supplied under contract by Barbour ABI. Barbour ABI provide us with improved coverage and regional splits of new orders in construction data.

  9. Relevant links

    A comparison of construction output and Market CIPS data

    Modelling Construction Statistics Deflators

    Impact of quarterly employment question on monthly survey response

    Government Statistical Service (GSS) uncertainty guidance

    Annual Construction publication Construction Statistics, No. 16, 2015 Edition

    Analysis of the construction industry

    UK Statistics Authority assessment

    Disclosure control policy

    Types of Construction work

    National Accounts and related statistics work plan

  10. Further information

    Releases on construction output and employment prior to the transfer to ONS can be found on the BIS website.

  11. User engagement

    The user engagement section of our website contains results of the survey held in April 2011 regarding users' satisfaction and use of the new orders and construction output surveys.

    We published a summary of initial responses to the Short-term Indicators National Accounts Survey on 9 February 2015.

  12. Code of Practice for Official Statistics

    National Statistics are produced to high professional standards which are set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs and are produced free from any political interference.

  13. Accessing data

    The Output in the Construction Industry statistical bulletin and relevant time series datasets are available to download free from the Office for National Statistics website at 9.30am on the day of publication.

  14. Further information and user feedback

    As a user of our statistics, we would welcome feedback on this release, in particular on the content, format and structure. For further information about this release, or to send feedback on our publications, please contact us construction.statistics@ons.gsi.gov.uk

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Contact details for this Statistical bulletin

Melanie Richard
construction.statistics@ons.gsi.gov.uk
Telephone: +44 (0)1633 456344