Construction output dropped by 0.6% in the three months to November 2023, data from the Office of National Statistics (ONS) shows.
Monthly construction output is estimated to have decreased 0.2% in volume terms. The monthly value in level terms in November 2023 stand at £15,571m. The ONS data shows that the decrease in monthly output came solely from a decrease in new work (2.0% fall), while repair and maintenance increased by (2.1%).
Three out of the nine sectors saw a fall in November 2023 with the main contributors to the monthly decrease seen in private new housing and infrastructure new work, which decreased 3.9% and 2.0% respectively. Anecdotal evidence suggested effects of adverse weather including heavy rainfall and strong winds in November 2023 led to delays in planned work.
Market reaction
Terry Woodley, MD of development finance at Shawbrook, said: “Construction output lagged in November, with both house building and commercial construction struggling to build momentum following sustained high interest rates and rising costs.
“Though December’s figures may be similar, 2024 holds a more positive outlook with interest rates expected to either hold or fall which is encouraging more confidence in the sector. Developers should continue to be resilient and use this as an opportunity to consider where they can make changes to their business strategy to ensure it’s robust against persistent challenges.”
Fraser Johns, finance director at Beard, said: “As we have seen throughout the year, November’s snapshot highlights the ongoing theme of clients prioritising improvements to existing building stock, rather than committing to new projects. Tighter access to credit, as well as tougher borrowing conditions are certainly contributing factors, while general uncertainty and a lack of confidence in the current climate is also having an impact. Given the turbulent weather seen too, it certainly makes sense to see construction output dampen in November.”
Michael Wynne, Co-founder of the housebuilder Q New Homes, commented: “Housebuilders faced a perfect storm of weak demand and surging input costs during much of 2023, and in November private sector housebuilding contracted by a further 3.9%, more than any other construction subsector.
“But despite the cold conditions on building sites this week, there’s a growing sense that the industry’s dark clouds are finally, slowly, starting to part. The new year began with a flurry of interest rate cuts from high street lenders, and the prospect of more affordable mortgages should help buyer demand recover in 2024.
“In fact there are signs that this has already begun, with Persimmon, one of the industry’s biggest beasts, reporting a modest uptick in house sales at the end of 2023. But with most developers planning 18 months to two years ahead, we’ll need to see a sustained increase in buyer demand before we can declare the worst to be past.
“Meanwhile on the supply side, challenges remain. Skilled tradespeople remain in short supply in many areas, with lead contractors and developers having to work hard to find and retain the people they need. As a result margins are likely to stay squeezed for the foreseeable future.
“Nevertheless there have been some positive movements on building materials. Softer demand has reduced average delivery times and even the costs of several key materials, so on balance the sector is beginning 2024 in a better place than the ONS’s November 2023 data might suggest.
“Looking ahead, 2024 is likely to see intense competition as housebuilders fight for market share as both demand and supply become more free-flowing. To succeed, developers will need to identify not just the right areas, but also the right design features, to win sales in the recovering new-build market.
“With many buyers focusing not just on upfront cost but also the ongoing cost of ownership, energy-efficient homes are likely to be in high demand, as will designs that use modern, sustainable methods of construction to reduce carbon while maximising quality and comfort.”
The UK economy has returned to growth
Monthly GDP is estimated to have grown by 0.3% in November 2023, following an unrevised fall of 0.3% in October 2023, according to the ONS.
The data showed retail was a major contributor to growth in the UK economy, due to Christmas shopping and Black Friday sales.
Real GDP is estimated to have fallen by 0.2% in the three months to November 2023, compared with the three months to August 2023. So, overall, the data suggests a period of flatlining growth.
However, Danni Hewson, head of financial analysis at AJ Bell, said: “When we are talking about such small moves on either side of the line most households won’t really care if the economy is growing or not, but psychologically avoiding a technical recession matters.
“November’s surprisingly robust GDP figures could suggest that falling inflation is finally having an impact on people’s sense of wellbeing, but in reality it seems many were simply tempted by Black Friday sales which in turn boosted retailers, couriers and warehouse operators.
“The bigger question is whether the momentum continued through the final days of 2023 and we won’t find out the answer to that for another month, but the odds look pretty evenly stacked."
