Construction output in Great Britain: Sept 2016 and July to Sept 2016

Short-term measures of output by the construction industry in Great Britain and contracts awarded for new construction work in the UK.

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Contact:
Email Melanie Richard

Release date:
11 November 2016

Next release:
9 December 2016

1. Main points

This is the first quarterly estimate for construction output covering data post-referendum. In Quarter 3 (July to Sept) 2016, output in the construction industry was estimated to have decreased by 1.1% compared with Quarter 2 (Apr to June) 2016.

The gross domestic product (GDP) preliminary estimate showed construction output decreased by 1.4%. The revision to a decrease of 1.1% has no impact on GDP to 1 decimal place.

Downward pressure on the quarterly estimates came from all repair and maintenance which decreased by 3.6%, partially offset by an increase in all new work of 0.3%.

Between Quarter 3 2016 and Quarter 3 2015, output was estimated to have increased by 0.1%. All new work increased by 2.0% while there was a fall of 3.4% in repair and maintenance.

In September 2016, construction output increased by 0.3% compared with August 2016. All new work increased by 1.2% while there was a fall in repair and maintenance of 1.4%. Users should note that we always warn against overly interpreting 1 month’s figures.

On the year, output increased by 0.2% in September 2016 compared with September 2015.

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2. Future developments

As previously announced, from January 2017 we are improving the way we publish economic statistics in a number of ways.

We are publishing related data at the same time under new “theme” days. This will increase the coherence of our data releases and involve minor changes to the timing of certain publications. For more information see Changes to publication schedule for economic statistics.

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3. Things you need to know about this release

The preliminary estimate of gross domestic product (GDP) for Quarter 3 (July to Sept) 2016 published on 27 October 2016, contained a forecast for construction output of a fall of 1.4%. This estimate has been revised upwards by 0.3 percentage points within this release based upon further survey responses; output is now estimated to have decreased by 1.1%. This upwards revision to construction output has no impact to 1 decimal place on GDP growth.

The release for September 2016 has a revision period back to July 2016. Revisions in this release were caused by the incorporation of late data. More information on revisions can be found in the background notes.

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

Construction output estimates are a short-term indicator of construction output by the private sector and public corporations within Great Britain and are produced from a monthly survey of 8,000 businesses in Great Britain. The 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). Unless otherwise stated, all data referred to are volume estimates which are seasonally adjusted.

Detailed estimates, along with a longer run of time series data, are available to download in the Output in the Construction Industry: Sept 2016 datasets. In these tables, you will find chained volume estimates back to Quarter 1 1997, and monthly estimates back to January 2010. Current price non-seasonally adjusted data are available back to Quarter 1 1955. More information on these statistics can be found in the Definitions and explanations article.

The data published in this release cover construction estimates for Great Britain. Construction output estimates for Northern Ireland can be obtained from the Department for the Economy website.

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 (now the Department for Business, Energy and Industrial Strategy) 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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4. Output in the construction industry – Quarter 3 (July to Sept) 2016

All work

In Quarter 3 (July to Sept) 2016 all work:

  • decreased by 1.1% compared with Quarter 2 (Apr to June) 2016
  • increased by 0.1% compared with Quarter 3 (July to Sept) 2015

Figure 1 shows the 2 main components of all work: all new work and repair and maintenance. In the early part of the time series construction output was fairly steady before falling dramatically in 2008 at the start of the economic downturn. There was an upturn in growth between late 2009 and late 2011, before another fall into late 2012. From early 2013, the measures increased steadily; however, in late 2014 all new work continued to increase while repair and maintenance declined. Throughout late 2015 and 2016, construction output has remained broadly flat.

In Quarter 1 (Jan to Mar) 2016, construction output surpassed the peak seen in Quarter 1 2008, and following contractions in Quarter 2 (Apr to June) 2016 and Quarter 3 (July to Sept) 2016 has dropped 0.9% below this peak. However, new work remains 6.5% above Quarter 1 2008 but repair and maintenance drags all work down and has yet to surpass this 2008 level. The recent contractions in this type of work mean that it is still negative 5.1% below Quarter 1 2008.

In Quarter 3 (July to Sept) 2016, all work decreased by 1.1% compared with Quarter 2 2016. The largest contribution to the fall came from repair and maintenance which fell by 3.6%; this was offset slightly by all new work which increased by 0.3%. Compared with Quarter 3 2015, all work increased by 0.1%; this is the fourteenth consecutive period of quarterly year-on-year growth. There was an increase of 2.0% in all new work while repair and maintenance fell by 3.4%.

Figure 2 looks at the main components of all new work. Compared with the previous quarter, total new housing saw no growth while infrastructure increased by 1.2%. This is the first quarter-on-quarter increase in infrastructure since Quarter 2 2015.

Compared with the same period a year ago there was a fall of 7.7% in infrastructure. All new housing increased by 8.7% which was the largest quarter-on-quarter increase since Quarter 1 2015.

Other new work has remained fairly flat in recent periods and Quarter 3 2016 was no exception showing no growth compared with Quarter 2 2016. Compared with Quarter 3 2015, there was an increase of 2.2% in other new work.

Figure 3 shows the 2 main components of total new housing. In Quarter 3 (July to Sept) 2016 compared with Quarter 2 (Apr to June) 2016, there was no growth in total new housing. Private new housing decreased by 0.1%, while public new housing increased by 0.8%. Due to the much larger weight of private new housing, which accounts for approximately 87% of the total (based on Quarter 3 2016 data) the increase in public new housing could not negate the fall in private new housing.

On the year, total housing increased by 8.7% with private new housing increasing by 10.8%, the fourteenth period of consecutive year-on-year growth, while public new housing decreased by 3.1%. This was the seventh consecutive period of year-on-year contraction in this work type.

Figure 4 looks at the main components of repair and maintenance. In Quarter 3 (July to Sept) 2016 compared with Quarter 2 (Apr to June) 2016, all repair and maintenance decreased by 3.6%, which was the largest quarter-on-quarter decrease since Quarter 1 (Jan to Mar) 2010 when it fell by 4.9%. The level of repair and maintenance at £11.6 billion was the lowest since Quarter 3 2013 when it was £11.5 billion.

Total housing repair and maintenance decreased by 3.2% in Quarter 3 2016, which was the largest quarter-on-quarter decrease since Quarter 1 2011 when it fell by 3.9%. Non-housing repair and maintenance decreased by 3.9% to a level of £5.7 billion and is now at its lowest level since Quarter 2 2013.

Compared to the same quarter a year ago repair and maintenance decreased by 3.4%, the largest year-on-year decrease since Quarter 4 (Sept to Dec) 2012. Once again there were decreases in both housing and non-housing repair and maintenance of 4.8% and 1.9% respectively.

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5. Output in the construction industry – Sept 2016

All work

In September 2016 all work:

  • increased by 0.3% compared with August 2016
  • increased by 0.2% compared with September 2015

Figure 5 shows the 2 main components of all work: all new work and repair and maintenance. The chart shows that since the 3 series began in January 2010, the monthly path has been volatile. The early period shows that after a rise in output in early 2010, the level remained fairly consistent until late 2011 when output started to fall.

Output increased steadily in 2013 and 2014 with all new work and repair and maintenance performing at a similar level; however, in late 2014 the components began to diverge.

All work increased in September 2016 by 0.3% compared with August 2016, with all new work increasing by 1.2%, while repair and maintenance decreased by 1.4%. Compared with the same period last year there was growth of 0.2% in all work; all new work increased by 3.4% with repair and maintenance falling by 5.3%.

Figure 6 looks at all new work. There was sustained growth in all new housing from early 2013 to late 2014, while the picture since 2015 has been mixed with periods of growth and contraction. After a fall of 0.9% in August 2016, there was a return to growth in September 2016 with output increasing by 0.7%. Year-on-year growth remained strong with an increase of 8.9% compared with September 2016, the tenth period of year-on-year growth.

Infrastructure continues to be volatile and reported an increase of 3.0% in September 2016 compared with August 2016. On the year, there was a decrease in infrastructure for the seventh consecutive period, falling by 5.4% compared with September 2015. However, this was the smallest year-on-year contraction since July 2014.

Other new work increased by 0.8% in September 2016 compared with August 2016, and increased by 3.9% compared with September 2015.

Figure 7 looks at the 2 main components of repair and maintenance. The level of both housing and non-housing repair and maintenance has been fairly consistent since 2010, with a similar contribution from both components to total repair and maintenance.

In September 2016 repair and maintenance decreased by 1.4% compared with August 2016. Non-housing repair and maintenance decreased by 1.2%, whilst total housing repair and maintenance fell month-on-month by 1.5%.

When compared with the same period last year, repair and maintenance decreased by 5.3%, the largest year-on-year fall since August 2015 and the fourth consecutive period of year-on-year contraction. Housing repair and maintenance was the largest contributor to the fall, decreasing by 7.2% which was the largest fall since September 2011. Non-housing repair and maintenance reported a smaller decrease of 3.3%.

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6. Summary of growth rates for all work types

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

  • there were month-on-month increases in all work types except private housing repair and maintenance and non-housing repair and maintenance

  • there were year-on-year increases in all work types except public new housing, infrastructure, private industrial new work and all components of repair and maintenance

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7. Contributions to growth

Figure 8 shows the contribution of each sector to output growth in the construction industry between Quarter 2 (Apr to June) 2016 and Quarter 3 (July to Sept) 2016. In the quarter, the largest contributions to the decrease came from non-housing and housing repair and maintenance.

Figure 9 shows the contribution of each sector to output growth in the construction industry between September 2016 and August 2016. In September 2016, all work types except non-housing and housing repair and maintenance saw increases in output. The largest upwards contribution came from infrastructure.

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8. 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 September 2016 was 70.8% of questionnaires, accounting for 80.9% 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 81 months, however, users should note that 60 months 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.

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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9. Construction estimates in gross domestic product

Construction estimates are a main component of the output approach to measuring gross domestic product (GDP) along with the estimates of services, production and agriculture. As an aid to users, the short-term economic indicator releases that directly feed into GDP include an additional table of the GDP components. It is anticipated that this table will inform users 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 2013. 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 1 (Jan to Mar) 2016 data:
Construction growth = negative 0.3
Weight in GDP = 0.059 (59/1000)
Effect on GDP = negative 0.3 * 0.059 = negative 0.02 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 negative 0.3
Construction = between 0.9 and negative 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 = 0.146*0.4 = 0.0584 or 0.1 to 1 dp
Construction = 0.059*0.9 = 0.0531 or 0.1 to 1 dp
IoS = 0.788*0.1 = 0.0788 or 0.1 to 1 dp

Table 2 shows the latest monthly and revised quarterly output figures that fed into the GDP Preliminary Estimate release for Quarter 3 (July to Sept) 2016, published on 27 October 2016.

The Quarterly National Accounts published on 27 October 2016 contained an estimate for quarterly construction of a fall of 1.4%. This estimate has been revised within this release based upon further survey responses and is now estimated to have decreased by 1.1%.

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10. Economic context

The monthly estimate of construction output rose by 0.3% in September 2016, following a decrease of 1.1% in August. Recent weakness in construction figures means that September’s output is some way below the average level seen across the first half of 2016, but is roughly the same as September 2015. The largest positive contribution this month came from infrastructure (plus 0.4 percentage points on the month) while the largest negative contribution came from repair and maintenance of private housing (minus 0.3 percentage points).

The increase in construction output this month is broadly in line with the Markit/CIPS Construction Purchasing Managers’ Index for September which recorded a rebound in construction activity as well as new orders. Over the quarter, the RICS UK Construction Market Survey for Quarter 3 (July to Sept) 2016 did report positive growth, albeit at a much slower rate than that seen over the last three years. Financial constraints were the most cited impediments to growth, followed by planning or regulatory delays and skills shortages.

Housing

Construction of new housing output rose in September 2016 (by 0.7% compared to August 2016), although HM Revenue and Customs UK Property Transactions Statistics reported a fall of 4.3% in the number of residential property transactions between August 2016 and September 2016, suggesting a drop in housing demand.

With respect to house prices, the ONS House Price Index for August 2016 reported an 8.4% increase in house prices in the year from August 2015, continuing the strong growth seen since the end of 2013. The average house price was £3,000 higher than in the previous month. More recently, Nationwide and Halifax house price data reported annual house price growth in the year to September 2016 of 5.3% and 5.8% respectively, an easing of house price growth compared to recent months.

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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 published by Eurostat on 19 October 2016 for August 2016 show the seasonally adjusted production in the construction sector in both the euro area (EA19) and EU28 when compared with July 2016. 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 2013 = 100 basis.

Outside of the EU, the US Census Bureau release Value of construction put in place was published on 1 November 2016. They include the total dollar value of construction work done in the US.

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. Quality and methodology

1. 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 construction 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.

2. 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.

These contain important information on:

  • the strengths and limitations of the data and how it compares with related data
  • users and uses of the data
  • how the output was created
  • the quality of the output including the accuracy of the data

3. 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 September 2016 has revisions back to July 2016.

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.

4. 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 on the construction web page. 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

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.Background notes

  1. 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.

  2. Understanding the data

    I. Interpreting the data

    When making comparisons it is recommended that you 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.

  3. 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, Energy and Industrial Strategy (BEIS), 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.

  4. 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. 17, 2016 Edition

    Analysis of the construction industry

    UK Statistics Authority assessment

    Disclosure control policy

    Types of Construction work

    National Accounts and related statistics work plan

  5. Further information

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

  6. 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.

  7. 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.

  8. Accessing data

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

  9. 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.gov.uk

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Contact details for this Statistical bulletin

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