Since coming out of the recession in 2014, the construction industry has maintained its performance throughout 2015, despite a huge amount of uncertainty around the general election halfway through the year. As we head towards the end of 2015, what have been the highlights and what will 2016 hold for the industry?
In this blog I review and compare reports from the ONS Output in Construction and the Markit/CIPS Construction Managers Index.
ONS figures output in the construction industry & Markit/CIPS Construction Purchasing Managers Index
The year started on a positive note with January being the 21st month running that the Markit/CIPS PMI index registered above the neutral value of 50.0. The Construction Product Association’s winter forecast showed that construction output was expected to increase 5.8% during 2015, reinforcing this positive outlook.
In February the construction PMI showed the fastest rise in new orders which indicated acceleration in output growth during the month, overall driven by a sharp expansion of construction output. In March business confidence was at its highest level in 9 years.
Originally for February the ONS estimated construction output to have fallen compared to January, which also showed a decrease. However the CPA did not agree with these figures stating this was not supported by other construction surveys. During the summer the ONS revised their construction output figures upwards to bring them in line with the results of other construction surveys.
In April, as the general election approached, the construction PMI showed construction output growth slowed, reaching a 22 month low and dropping for the 2nd month running. It was suggested that uncertainty around the general election contributed to delays in clients’ spending decisions, which in turn contributed to the slowing in growth.
In May following the election the construction PMI rebounded showing confidence by construction companies for the year ahead to be at its highest level since February 2006. June also saw an increase in construction output. And the construction PMI reported output growth rebounded to its fastest in four months.
July saw a loss of momentum in residential new build activity triggering a slowdown in construction output growth resulting in a drop in the construction PMI. In contrast August saw the fastest rise in commercial work for five months.
September showed the fastest increase in output levels since February, representing a seven month high for construction output growth.
By the autumn of 2015 we saw October mark two-and-a-half years of sustained output growth across UK construction, helped by the fastest rise in new work for 12 months.
However the pace of growth remained weaker than seen on average in 2014.
Overall it was a strong start to 2015. Once the uncertainty around the election was dispelled the industry returned to growth with output increasing steadily. As we come to the end of 2015 the trend for both growth and output in construction remains positive. Yet this is not as strong an outlook as this time last year. This is reflected by the CPA forecasts. Last year the CPA’s winter forecast showed that construction output was expected to increase 5.8% during 2015. In fact the recent CPA construction forecasts now expect total construction output in 2015 to rise 3.6% and 3.8% in 2016. This downward revision is due to the slowdown seen in housing and commercial activity during Q3.