Construction Shrinks By 2.6% in January

There was an unexpected drop in construction in January compared to the previous month according to the Office For National Statistics. The decline in construction follows declines in other sectors such as manufactoring and is seen as a concern by economists who suggest that is could be part of a broader economic slowdown. Economists have also pointed out that business investment has also fallen in the last quarter of 2015 to a level that has not been seen since 2009. The figures will not make good reading for the Chancellor George Osborne who set out plans for the future in the recent budget.

The decline in house building has been put down to the sharp fall in the number of mortgage approvals seen last year as the new mortgage rules were introduced by the Bank of England. This has led to a fall in sales and therefore fewer houses being built. New affordability tests were introduced las year and this has led to many first time buyers being turned down for a loan. The news will be disappointing for the government who are keen to see the UK build as many houses as possible to meet current demand. Any drop in construction means that house prices are likely to rise further as homeowners scramble to secure a home.

137,000 New Homes Built Last Year

The Government is relying on the UK construction industry to build the required £250,000 new homes every year. Last year the number of new homes built fell well short at 137,000. This is well below the figure of peak of 180,000 not seen since 2006. The government will be in for a lot of criticism as it has stoked demand with it's various incentive schemes but it is clearly not doing enough to get more houses out of the ground. Because the UK relies so heavily on private construction firms and doesn't have it's own workforce it also has to accept that it will be subject to the whims of the property market.

Building firms and the construction industry are also complaining that there is a shortage of skilled workers because so many workers were laid off in the great recession. Put simply there are not enough brick layers. Shortages in the labour market has also increased to an all time high of 48% and this is another major problem for the government and the construction industry. This is likely to push up wages as employees demand more money owing to the shortage. The construction sector has not been able to keep up and this is reflected in the latest data