UK construction output drops in October but new orders surge on HS2 awards

UK construction output contracted in October, but new orders grew sharply, according to data from the Office for National Statistics.

On a three-month rolling basis, construction output was down 1.4%, while on a month-on-month basis, construction output declined by 1.7%, partly due to a 1.5% drop in all new work.

Analyst had been expecting construction output to rise by 0.1%.

However, new orders saw record growth in the quarter from July to September, rising 37.4% compared with the previous quarter. This was mostly driven by growth in the infrastructure sector, thanks to the award of several high-value new orders relating to High Speed 2. ONS said growth in new orders was the highest on record, exceeding the previous high of 32% seen in the third quarter of 1987, which was a result of new orders placed for the construction of the Channel Tunnel.

Housing new orders also grew, up 9.5%, recovering from a 4.2% decline in the previous quarter.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The recession in the construction sector is worsening at an alarming rate."

However, Tombs reckons the sector should stabilise soon. "The construction PMI rose to 53.1 in November, from 50.8 in October, while the prospects for housebuilding remain positive. But a return to sustained growth looks unlikely. Admittedly, new construction orders jumped by 37.4% quarter-on-quarter in Q3 - the most on record - fully reversing the second quarter's 7.4% drop. But the surge reflected the government allocating contracts for the High Speed 2 rail link, which will take many years to build.

"New orders excluding infrastructure projects rose by 4.1% quarter-on-quarter and were unchanged year-over-year. Meanwhile, Brexit uncertainty will continue to hit commercial projects, while a planned 4.5% decline in public sector investment next year will additionally dampen the sector."