Adverse weather seen in March contributes to drop in construction activity

The IHS Markit/CIPS UK Construction PMI April 2018 reports the fastest drop in construction activity since July 2016, with the drop in business activity due to the adverse weather in March. The Index registered 47.0 in March, a drastic drop from 51.4 in February. The index is now registering below the neutral growth mark of 50.0 for the first time in six months, with the overall reduction being driven by the sharpest decline in civil engineering work for five years.

The CPA’s latest State of Trade Survey for 2018 Q1 shows that the UK construction products manufacturing industry suffered a weak start to 2018, in part due to the liquidation of Carillion and disrupted activity from the heavy snow in March. Research by S&P Global Ratings concludes that PFI is not accountable for Carillion’s liquidation and any further troubles the UK construction sector faces this year.  Despite a weak start to 2018, manufacturers anticipate a return to growth in the coming quarters, according to the CPA’s State of the Trade survey, but rising costs continue to act as a headwind.

The manufacturer optimism reported by the CPA is also in contrast to CBI figures, which show growth in the UK’s private sector slowed in the three months to March 2018.  With just 8% of firms across the distribution, manufacturing and service sectors, reporting a rise in output, down from 20% in the three months to February 2018.

In relation to rising costs the construction material price index for all work increased 4.8% in the year to February 2018, compared to a year ago. Construction materials prices for new housing, other new work and repair and maintenance rose 5.1%, 4.8% and 5.0%, respectively, compared to a year ago. Alongside this RICS report that brick and tile stocks are at their lowest level since the beginning of 2015.

Latest ONS figures show construction output continues to decline, failing by 0.89% on a 3 month on 3 month basis. This decrease was driven mainly by the continued decline in repair and maintenance work, which fell 2.6% in February.

Current BCIS forecasts report tender prices rose sharply in the first half of 2017 but are expected to fall over the year to Q4 2018. In the BCIS ‘Central’ forecast, new work output is expected to remain almost unchanged in 2018, with a sharp fall in private commercial work being balanced by increases in the remaining new work sectors.

The Barbour ABI March Economic & Construction Market Review also reports a decline, with new construction contracts awarded in February 2018 decreasing by 9.1% compared to January, and were 24.0% lower than February 2017. However, the number of construction projects increased by 3.1% in February 2018 from January, and was 3.4% ahead of February 2017. And the Royal Institute of British Architects’ (RIBA) Future Trends Workload Index continued recovery in February, up to +17, rising from +12 in January 2018; the third consecutive monthly increase since its pre-Christmas low.

NHBC reports that 11,597 new homes were registered to be built in the UK during February 2018. With 9,124 registered in the private sector and 2,473 in the affordable sector, broadly in line with registration volumes over the previous two months.

According to the ONS, in February 2018, the number of residential property transactions decreased by 0.3% compared to January, 0.7% lower than the same time last year. Barbour ABI has released the Home Improvers of Great Britain 2017 report, showing that applications for home improvement in Britain rose 2.8% in 2017. But the regional picture remained mixed, consistent with recent developments in house prices. And London and Scotland registered falls in the number of planning applications for home improvement in 2017.

The Halifax House Price Index reports that in March 2018 house prices were 1.5% higher than February. And annual house price growth increased to 2.7% from the 1.8% recorded in February. The Nationwide House Price Index reports that in March 2018 house prices fell 0.2% compared to February. And annual house price growth remained broadly stable at 2.1%, with little change from 2.2% recorded in February. The ONS House Price Index for January 2018 shows UK house prices grew by 4.9% in the year to January, down from 5% in the year to December 2017. And the average price of a property in the UK was £225,621.

Kier group PLC have released their financial results for the six month period ended 31st December 2017, showing an increase in revenue of 8% to £2,154m and an increase in operating profit of 5% to £60m. This is due to a £9.5bn Construction and Services order book, combined with a £3.5bn pipeline in the Property and Residential divisions, providing good visibility of work over the medium term.

And Wates Group have released their annual results for 2017, reporting an increase in turnover of 9% from £1.53bn in 2016, and an increase in profit before tax of 7%, mainly due to a record forward order book of £5.1bn.

And finally, construction has the biggest gender pay gap of any British industry, reporting a median difference of 25 per cent. Construction News comments “The only way to close construction’s 25 per cent gender pay gap is to aim for parity on all levels between men and women. The question now is: can the industry rise to the challenge?”

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