In the final quarter of 2013, for the first time in 5 years, the construction industry saw growth over 3 consecutive quarters. This heralded the end of recession, and marked the beginning of growth for the construction industry. So what have been the highlights of 2014 so far? And what could 2015 hold?
ONS figures output in the construction industry 2014
This charts shows output in the construction industry in 2014 began with slow growth, working its way to 3 consecutive months of growth from February onwards, ready to carry the growth through the summer, with very little change moving towards the end of the year.
The quarterly change for output has been consistently growing throughout the year, showing a positive trend.
Halifax & Nationwide House Price Index Monthly Changes 2014
This chart shows, that despite housing leading the recovery in 2014, it was a bit of a roller-coaster ride, as house prices began the year with a slight decline before reaching their peak around May, levelling off again as the end of the year approaches.
Note: the Halifax and Nationwide house price indexes tend to follow similar patterns over long periods of time, however short term variations show due to the statistical techniques used to calculate their prices.
The construction Industry – so that was 2014
2014 started on a positive note with Markit/CIPS PMI data showing the sharpest rise in construction output since August 2007 and The Halifax House Price Index reporting the eleventh monthly increase within a twelve month period. The market was encouraged by these early signs of recovery.
By spring Markit/CIPS PMI indicated that housing activity growth was approaching a 10 year high, signifying the start of housing leading the recovery.
And by the summer Nationwide House Price Index reported house prices had passed far beyond their peak in 2007. This then lead to discussions about over-heating in the housing market, and the possibility of a price bubble from un-sustainable growth.
Towards the end of summer construction growth was still being reported, with the ONS Output in Construction July 2014 figures reporting a year-on-year growth for the fourteenth consecutive month. But warnings were being made about growth being at its weakest since November 2013.
By Autumn Markit/CIPS PMI showed construction output rising at its slowest rate in five months. And the recent 2014 UK Construction Key Performance Indicators Annual Report found industry profitability had dropped to 2.1% – the lowest level since the Construction KPIs were first launched in 1999.
In November the ONS reported that output in the construction industry increased by 3.5% in September 2014 compared with September 2013. This was the 16th consecutive period of year-on-year monthly growth. And the CPA Construction Trade Survey reported construction activity rose in Q3, the sixth consecutive rise in activity. This despite a slowing in private housing output.
The latest analysis by Glenigan reports that the residential housing market, which has led growth in 2014, will remain an important factor in 2015. Increased activity in the housing market is expected to spread from London and the South East, as faster average earnings growth is seen. However it is now the office sector which is expected to take over as the leading growth for the construction industry, as demand for more quality office space spreads beyond London.
Arch- Vision report that sentiment within architectural firms is positive in Q3 2014 with 43% of architects experiencing an increase in their order book.
According to the CBI’s quarterly Industrial Trends Survey for the three months to November, 15% of firms, on balance, reported an increase in output volumes. Looking forward to the next quarter, a balance of 12% of firms expects output volumes to increase.
So what can we anticipate to happen in 2015?
We are not out of the woods. David Cameron has warned of the risk of another UK recession.
Arch-Vision state there are signals that one should be careful about being “not too euphoric”, they nevertheless predict modest growth will continue in 2015 (+3%) and 2016 (+2%).
Short term construction growth, according to the CPA Autumn Forecasts, is still reliant on private housing, infrastructure and commercial. Yet The CPA say there is a positive outlook with Construction firms reporting rises in forward looking indicators such as orders and enquiries; With the CPA anticipating overall construction output to grow 5.3% in 2015.
2014 heralded the beginning of growth for the construction industry, since the start of the recession in 2007. This recovery was lead by the housing sector, which also prompted warnings of unsustainable growth.
Towards the close of 2014 we have seen a slowing in growth but continued optimism by the sector is reported. Moving into 2015 housing will remain a positive influence on construction growth, but the commercial sector is predicted to lead the way.