Mild decline forecast for construction, despite mild recovery in Quarter 2
Moderate fall in construction growth forecast for 2018
Construction is expected to experience a moderate fall in growth for 2018, following five years of consecutive growth. According to The Construction Products Association’s Summer Forecasts growth for the whole of 2018 is anticipated to fall 0.6%, before increasing to 2.3% in 2019 and 1.9% in 2020, with house builders being the primary drivers of growth for the industry. Glenigan also forecast a moderate fall, with the underlying value of construction project starts to fall by 6% for 2018. However they do forecast growth for the education, health and civil engineering sectors. And it is predicted that the fall in construction starts will ease in 2019 but the outcome of Brexit will be a key influencer. The Hewes & Associates latest construction outlook: July 2018 also shows a weakening in construction output over 2018.
Market reports show a divergence by type of work
The ONS report that Construction output grew by 0.9% in Q2 2018, a slight recover from the fall of 0.8% seen in Q1 2018. This increase was mainly driven by a 2.7% increase in repair and maintenance work, with all new work remaining flat. Monthly construction output increased by 1.4% in June 2018 driven by the continued growth in infrastructure new work, which increased 9.2%. Commenting on the latest ONS figures the Construction Products Association have said “As much as it has been a tale of two quarters, there has also been a divergence by type of work. New build activity was unchanged from Q1 and was 0.4% lower than 2017 Q4, as rises in public housing, infrastructure and industrial output were offset by falls in private housing and public sector work.”
In their latest State of Trade Survey for Q2 2018, The Construction Products Association, report that the construction products manufacturing industry began its catch-up of activity, which was lost to adverse weather conditions during the first quarter of the year. These construction product sales act as an early indicator of wider activity in the supply chain, pointing to a rise in total construction output levels over the next 12 months.
The IHS Markit/CIPS UK Construction PMI July 2018 reports that construction output increased sharply in July, signalling the fastest rise in overall construction output since May 2017. The Index registered 55.8 in July, an increase from 53.1in June, with survey respondents commenting on improving demand conditions and higher volumes of new project starts.
The construction material price index for all work increased 6.0% in the year to June 2018 and rose 0.8% on a monthly basis. Construction material prices for new housing rose by 5.2%, whilst prices for both other new work and repair and maintenance rose by 6.1%.
This market data is in contradiction to the forecast data for 2018, which forecasts a moderate fall. Only RICS UK Construction and Infrastructure market survey shows that construction workloads slowed amid financial constraints, which was reported by 80% of respondents to be the most significant impediment to building activity.
Shortage of properties for sale impact on property transactions
In June, the number of property transactions in the UK totalled 96,340 according to HMRC, a 3.0% decrease from May 2018 and 5.7% lower compared to a year earlier. This marks a sixth consecutive month of annual decline, largely reflecting the ongoing shortage of properties for sale on the market. Yet NHBC’s latest new home registration statistics show that builders registered almost 39,000 new homes in the UK during Q2 2018, a decrease of 3% on the 40,313 registered 12 months ago.
UK Finance reported that the number of mortgage approvals for house purchase decreased 0.9% year-on-year in June, the ninth consecutive month of annual decline, despite an increase of 2.6% on a monthly basis. The value of these loans increased 2.8% from a year earlier and rose 2.5% month-on-month. However according to the Bank of England, in June, the number of mortgages approved for house purchase didn’t decrease quite as much, just 0.2% year-on-year, but it also shows the ninth consecutive month of annual decline and a rise of 1.4% on a monthly basis.
The Halifax House Price Index reports that in July 2018 house prices were 1.4% higher than June. And the Nationwide House Price Index reports that in July 2018 house prices increased just 0.6% compared to June. Nationwide also report annual house price growth picked up to 2.5% in July from the 2.0% recorded in June, with Halifax reporting that annual house price growth rose to 3.3% in July. The ONS House Price Index for May 2018 shows average UK house prices grew by 3.0% in the year to May, down from 3.5% in the year to April 2018. This is lowest annual rate since August 2013.
Remaining profitable in construction markets
And finally…Building has revealed its exclusive Top 150 contractors and housebuilders 2018 league tables, as well as a full analysis of the results. These latest league tables show that the country’s 10 biggest contractors made a combined margin of less than half a percent on turnover of £31bn. This figure, which works out at a margin of just 0.38%, down from 1.09% last year for the same firms, underlines how far the country’s biggest builders have to go to reach most firms’ stated minimum target margin of 2%.
Competitive Advantage, together with Hewes & Associates can provide a construction market forecast tailored to the opportunities in your sectors. This exercise is relatively low-cost and can help you anticipate any potential threats and indeed be well placed for new business opportunities.
Construction Outlook from Hewes & Associates provides three years of forecast data for Housing, Infrastructure, Public non-Housing, Industrial, Commercial, Repair & Maintenance
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