Construction overview
Output grows by two percent in 2023 but quarterly data is weak
The construction sector recorded an annual growth rate of two percent in 2023 a considerable easing after an increase of 6.8 percent in 2022.
On a quarter on quarter basis construction output fell 1.3 percent in Q4 2023, following the 0.1 percent rise in Q3, the largest quarterly decline since Q3 2021. The fall reflects a decline in new works output of five percent in the same period, partially offset by repairs and maintenance (R&M) growing by four percent.
Within new works, private housing declined for the eighth consecutive quarter, falling eight percent on the quarter in Q4 2023, followed by infrastructure new works, by 7.5 percent and private commercial by 2.3 percent.
Growth came from public and private housing R&M, increasing by 8.3 percent and 4.3 percent, respectively, and non-housing R&M, increasing by three percent, as well as new public housing works, by 1.5 percent, provided much-needed boost to the sector.
The poor weather last autumn played a part in the sectors poor performance. As the ONS suggested heavy rainfall, strong winds, cold temperatures and frost curtailed new work, while conversely, the adverse weather helped the R&M sector.
Source: Office for National Statistics
New orders and new demand
Quarter on quarter data shows new orders fell by 13.1 percent in Q4 2023 compared to Q3. In value terms, new orders fell to £9bn, the lowest level since Q2 2020, when it reached £6bn when COVID-19 lockdown restrictions were in place. On an annual basis, new orders were a third lower in Q4 2023 compared to Q4 2022. In fact, 2023 was the worst year for new orders since the global financial crisis in 2008.
Private housebuilding continues to remain in a state of weakness, having declined on a quarter on quarter basis since Q2 2021. High mortgage rates and deteriorating affordability, due to elevated prices and the cost of living crisis have played a part, as has the end of the Help to Buy Scheme in March 2023. The recent revival in mortgage lending for house purchases, which is an indicator of future borrowing, is a positive sign.
Private developers, however, are making more use of discounts and other incentives to support house sales – a trend seen in previous housing downturns. Additionally, they are increasingly selling to housing associations and build-to-rent investors, rather than to individual buyers.
Industrial and commercial activity was also weak in 2023 Q4, contracting by 27.6 percent and 18.1 percent on Q3, respectively. COVID-19 restrictions boosted online shopping and increased demand for more warehousing space, but this trend appears to be fading.
Meanwhile, nuclear power, both traditional and small modular reactors, received welcome attention in the March Budget, bringing confidence that support for the sector will remain strong. This included purchase from Hitachi of its two Welsh reactor sites, off the back of the recently announced civil nuclear roadmap.
Source: Office for National Statistics
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