Uncertainty over house building
The two main industry forecast providers appeared to give contradicting analysis this month, with the residential building sector either the champion or the loser depending on which you read.
There was a moderate rebound in UK construction output, with business activity rising at the strongest rate since June, according to the IHS Markit/Cips UK Construction Purchasing Managers’ Index (PMI).
However, the report said the improvement in construction growth was largely confined to residential work.
The latest survey revealed sustained reductions in commercial building and civil engineering, with the latter now experiencing its longest period of decline since the first half of 2013.
However, Glenigan reported that starts in the three months to November were 11% down on a year ago.
Residential starts were 17% lower, due to a sharp fall in private housing activity and fewer social housing projects. Non-residential project starts were 7% down on the same period in 2016.
Glenigan agreed that civil engineering starts were down, but education project starts increased by 26%, and retail projects were 46% higher than a year ago.
Allan Wilén, Glenigan’s economics director, said: “Private residential starts were 23% lower than during the previous three months on a seasonally adjusted basis and down by 19% on the same period last year. The decline is against a backdrop of weak household earnings and a cooling in property transactions in the wider housing market. Social housing starts have also slipped back in recent months, being 12% lower than a year ago.”
Cips UK Construction PMI, on the other hand, said house building projects were again the primary growth engine for construction activity. Survey respondents suggested that resilient demand and a supportive policy backdrop had driven the robust and accelerated upturn in residential work.
Higher levels of new work helped to support a moderate rise in staff numbers and input buying in November. Lead-times for construction products and materials lengthened sharply, linked to pressure on supplier capacity. However, cost inflation eased to its least marked for 14 months, with some firms reporting signs that exchange-rate driven price rises had started to lose intensity.
Duncan Brock, Cips director, said: “Overall, the sector showed an incremental improvement, but business optimism was on the rise and up from last month’s five-year low. Perhaps the darkest days are behind the sector with fresh impetus on the horizon for the New Year.”
Looking ahead to 2018, Glenigan expects the value of construction starts to stabilise in 2018, after the declines seen over the last two years, as construction clients adapt their investment plans to the changing political and economic environment.
“The value of underlying construction projects has fallen back this year amid continued political and economic uncertainty, delays to public sector projects, and a weakening in housing market activity,” Allan Wilén said.
“While a weak UK economy is forecast to constrain construction activity over the coming year, we anticipate greater stability in overall construction starts as strong growth in hotel and leisure, industrial and education work help offsets weakness elsewhere.”
He continued: “Real household earnings growth has stalled due to weak wage growth and higher inflation. This is forecast to slow housing market activity, with weak new house sales holding back sector activity. The value of private housing projects starting on site is forecast to drop 3% next year as housebuilders prioritise building out current developments and open fewer sites.”
Allan also said that concerns over Brexit will persist into 2018, which will affect project starts, especially developments in the City of London and Docklands.