Optimism improving, despite Brexit uncertainty weighing on construction markets
The IHS Markit/CIPS UK Construction PMI for November 2018 points to an expansion across the construction sector, as the index registered 53.4 in November, up from 53.2 in October. This was driven by the residential building sub-sector being the best performing, as activity in this area rises at its strongest pace for 3 years. This latest data also indicated that business optimism across the construction sector rebounded from the near six-year low seen in October, despite Brexit related concerns remaining.
Supporting this increase in business optimism, the October RIBA Architects’ Future Trends Workload Index increased to +11, up from +7 in September. However, the value of work in progress declined for the 2nd consecutive quarter, indicating the impact of ongoing Brexit uncertainty. With the overall picture being of a market that is lacking growth momentum.
The construction material price index for all work increased 5.1% in the year to October 2018, and rose 0.5% on a monthly basis. Construction material prices for new housing, other new work, as well as repair and maintenance rose by 4.7%, 5.1% and 6.0%, respectively in the year to October.
The ONS report that construction output decreased by 0.2% in October 2018 compared with strong growth of 1.7% in September 2018. Despite the month-on-month decline, construction output in the three months to October 2018 was 1.2% higher than the previous three-month period; however this growth was slower than in recent months, with a steady decline being seen from a high of 3.0% growth for the equivalent series in July 2018. The ONS also report that new orders grew by 3.4% quarter-on quarter in July to September 2018, with a strong increase in public other new work of 31.9% helping offset a 5.3% decline in housing new orders.
The latest construction industry forecasts for 2019 & 2020 from Glenigan show that the overall construction market is forecast to contract in 2019. This is based on project starts having fallen by 6.0% in 2018 and being expected to decline by 2.0% in 2019, before recovering by 3.0% in 2020. While overall starts are expected to decline in 2019, Glenigan do forecast growth in specific sectors and regions.
The latest Builders Merchants Building Index for Q3 2018 shows that sales through UK builders’ merchants were up 4.2%, compared to the same quarter last year. Although showing a year-on-year increase in performance, the 2018 quarter-on-quarter comparison shows the market slowing by -3.4% compared to Q2.
The Infrastructure and Projects Authority have published the 2018 update to the National Infrastructure and Construction Pipeline, setting out £413 billion of planned public and private investment over this Parliament and beyond. The pipeline contains 684 projects, programmes and other investments, with £188bn to be invested between 2018/19 and 2020/21, which is £6.0bn higher than the £182bn previously estimated in December last year.
A strong end to the year for housing, despite caution around Brexit
NHBC’s latest new home registration statistics show that 42,307 new homes were registered to be built in the UK during August to October, an increase of 7% on the 39,625 registered in the same period 12 months ago. NHBC are hoping that this strong end to the year will be maintained despite seeing some caution around what will happen with Brexit.
In October 2018, the number of property transactions in the UK totalled 102,530 according to HMRC, a 0.9% increase from September and 1.3% higher compared to a year earlier. This marks the highest monthly number of property transaction in 2018. However for the year to date, property transactions remain 3.0% below the level for the same period of 2017.
According to UK Finance, the number of mortgage approvals for house purchases decreased 1.2% year-on-year in October, the thirteenth consecutive month of annual decline, but increased 2.5% on a monthly basis. The value of these loans increased 2.6% from a year earlier and rose 1.7% month-on-month. In contrast, according to the Bank of England, the number of mortgages approved for house purchase reached 67,086 in October, the highest since January 2018. This was an increase of 4.0% on an annual basis and rose 2.1% on a monthly basis. The value of these loans was 4.9% higher than a year ago and increased 1.3% month-on-month.
UK house prices rose to 3.5% annually in September 2018, up from 3.1% in August according to the ONS. By nation, house prices grew 3.0% in England, 4.8% in Wales, 5.8% in Scotland and 4.8% in Northern Ireland in September.
The Halifax House Price Index reports that in November 2018 house prices fell 1.4% compared to October, the sharpest monthly fall since April 2018.The Nationwide House Price Index reports that in November 2018 house prices increased 0.3% following a flat reading in October, with annual house price growth increasing to 1.9%. And Halifax report that annual house price growth slowed to 0.3% in November from the 1.5% seen in October.
Innovation in Construction
Modern methods of construction: who’s doing what? Is a new research report published by the NHBC Foundation. The research, which sets out to better understand innovation in MMC within the housing-development sector, has found that nearly 30% of developers are already investing in their own manufacturing facilities, and over 60% have invested in R&D. The report also includes a review of 18 developers with their current activity and future plans.
The government has announced £72 million of funding from Innovate UK to create a new organisation called Core Innovation Hub which will transform the UK’s construction industry by supporting the development and use of technologies such as digital design, advanced manufacturing, robotics, drones and augmented and virtual reality. Funding will go to a joint venture comprising the Building Research Establishment, Manufacturing Technology Centre and the Centre for Digital Built Britain. Projects will include the development of LEXiCON originally an initiative of BIM4M2 which had stalled. When developed this will provide a free-to-use open system process enabling a universal product data standard. Once in place manufacturers will benefit from a low cost means of sharing their BIM content with designers and contractors.