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The official data confirms our assessment that falling Government investment was the main cause of the sharp fall in construction output during the second quarter. Whilst the detailed construction output data released last week trimmed the decline to 3.9%, compared to the 5.2% fall in included in the GDP statistics, the decline is still striking. 

As anticipated the decline in output was been led by sharp falls in public sector new work, with new social housing output falling by a quarter and non-residential output, which includes schools and health facilities, was 21% lower than a year ago. 

The decline in infrastructure output is also striking, falling 9% during the three months to June and down by a quarter on a year ago. In part this may reflect the conclusion of major projects such as the M25 widening ahead of the Olympics. Near term the Games may have a further dampening effect on sector during the third quarter as work on projects is scheduled and deferred to minimise disruption. 

The sharp drop in private housing RM&I is disappointing, but reflects the lower level of property transactions, restricted access to credit and continued consumer caution. The Government’s decision to cut the tariff on domestic solar power installations may have also contributed to the decline.  

The small declines in private new housing, industrial and commercial output reflects earlier weakness in project starts during 2011. Glenigan has recorded an encouraging pick-up in the value of private housing, office and industrial projects starting on site during the first half of 2012. This should begin to bolster private sector output over the coming months, helping to offset weak public sector output.  

Chart 1: Construction Output - 2nd Quarter 2012

Chart 1: Construction output – Second Quarter 2012

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