UK construction sector slips into recession for first time in four years

Figures from the Office for National Statistics show the industry was struggling even before the Brexit vote

The UK’s construction industry has slipped back into recession for the first time in four years, according to official figures that show the sector was struggling even before the vote to leave the EU.

Experts say the drop in business and consumer confidence since the referendum will further dent construction activity in the months ahead. The Office for National Statistics said output dipped 0.7% in the second quarter of 2016, following a drop of 0.3% in the previous three months. It is the first time there have been two consecutive quarters of falling output – a technical recession – since 2012, when the eurozone debt crisis shook confidence across Europe.

The ONS said its latest figures included a short period after the 23 June referendum, but noted that there was “very little anecdotal evidence at present to suggest that the referendum has had an impact on output.”

For June alone, construction output was down 0.9%, broadly in line with forecasts for a 1.0% drop.

Economists put the industry’s troubles down to government spending cuts and a blow to private sector investment plans from the referendum. A recent business survey by the data group Markit suggested pressure had intensified after the referendum. The PMI report signalled the sharpest contraction since mid-2009.

Commenting on the latest news from the sector, Samuel Tombs, the chief UK economist at Pantheon Macroeconomics said: “June’s official data confirm that the construction sector re-entered recession in the first half of this year, as public sector cuts and Brexit risk took their toll.”

“The downturn looks set to deepen in the third quarter. July’s construction PMI broadly is consistent with output falling by about 3.5% quarter-on-quarter. Meanwhile, Brexit negotiations will be protracted, so businesses will hold off committing to major capital expenditure for a long time to come.”

When the ONS published figures last month showing a relatively strong GDP growth of 0.6% in the second quarter, it had estimated a more modest fall in construction output of 0.4%. The higher figure of 0.7% will, however, have no discernible impact on the GDP figures given that construction only accounts for about 6% of the UK economy.

The fact that the figures show the sector was already in recession before the referendum result will still fan fears for construction jobs.

The National Housing Federation said signs of a post-referendum slowdown should prompt the government to do more to support housebuilding. The group, which represents non-profit housing associations, said a slowdown in housebuilding similar to that of the 2008 recession would result in the loss of nearly 120,000 construction jobs over the next decade.

The federation’s chief executive, David Orr, said: “We know that an uncertain economic environment will cause builders to put the brakes on. Our country’s prosperity and thousands of citizens’ livelihoods depend on a strong building sector. We cannot let a slowdown take hold.

“Housing associations have a track record of building through tough times, having upped their output through the last recession when private developers could not. With the right flexibility from government, and at no extra cost to the taxpayer, housing associations can keep the nation building.”