A slow start to 2018 for construction, with output expected to remain flat for the year

The ONS released their Construction output in Great Britain: December 2017 figures, showing a continuing decline. Construction output contracted for the eighth consecutive period on a 3 month on 3 month basis, falling by 0.7%. This contraction represents the most sustained fall in quarterly construction output since Q3 2012.

The IHS Markit/CIPS UK Construction PMI February 2018 report shows construction output growth stagnated in January 2018. The Index registered 50.2 in January down from 52.2 in December 2017, signalling a fractional rate of growth, the weakest in four months.

The latest construction forecasts from the Construction Products Association also show that construction output is expected to remain flat in 2018, with construction output forecast to rise by 0.2%, before growth of 1.7% in 2019. They forecast that any growth in construction will be reliant upon the government’s delivery of infrastructure projects. The Construction Products Association forecast the sharpest decline for construction in 2018 to be in the commercial sector, particularly felt in the offices sub-sector, due to lack of clarity on the UK’s post-Brexit deal leading to a fall in contract awards.

But according to the London report 2018 from property consultancy Knight Frank, London is facing a shortage of supply of new offices over the next three years, as research shows in 2017 13.8m sq. ft. of office space was leased, an increase of just  2m sq. ft. compared with 2016. However London is not expected to suffer any Brexit-driven downturn.

The latest Deloitte Real Estate Crane Survey UK series reports that UK regional cities are showing record levels of construction activity, as developers’ confidence for city centre residential development remains strong, despite the Grenfell tragedy. This survey monitored construction activity in Belfast, Birmingham, Leeds and Manchester last year.

On a more positive note the latest quarterly SME Trends Survey, from CBI, shows output growth among the UK’s small and medium-sized manufacturers picked up in the three months to January 2018, as 36% of firms said the volume of output over the past three months was up. Further acceleration is expected next quarter, with 32% of firms saying they were more optimistic about the general business situation than three months ago.

The construction material price index for all work also increased 5.5% in the year to December 2017 and rose 0.9% on a monthly basis. Construction materials prices for new housing, other new work and repair and maintenance rose 6.2%, 6.4% and 5.6%, respectively, in the year to December 2017.

The January Economic & Construction Market Review from Barbour ABI shows all construction contracts awarded in the UK in 2017 reached £71.0bn, a 0.6% increase compared to 2016, leading to contract award values steadying in 2017 following a 5% decrease in project awards in 2016.

NHBC reports that 160,606 new homes were registered to be built in the UK throughout 2017, a 6% increase compared to the 152,017 registered in 2016, making this the highest since the pre-recession levels of a decade ago. And according to the Bank of England, in December 2017, the number of mortgages approved for house purchases decreased 10.8% on an annual basis and 5.7% on a monthly basis to 61,039. This was the lowest number recorded in three years, as the value of these loans was 6.1% lower than a year ago and decreased 3.0% month-on-month. These latest figures complement recent data from UK Finance, which showed that mortgage lending for house purchases fell to its lowest in nearly five years.

According to the January 2018 RICS UK Residential Market Survey, the UK housing market has started off 2018 in a similar fashion to the closing stages of 2017, with new buyer enquiries across the UK declining as 11% more survey respondents report a fall rather than rise.

Lloyds Bank has published their third annual survey of the UK Housebuilding Industry. Showing housebuilders’ five-year growth forecasts have edged up to an average 29% of current annual turnover. With 44% saying Brexit uncertainty is the biggest challenge for the industry.

The Halifax House Price Index reports that in January 2018 house prices fell 0.6% following a 0.8% decrease in December 2017. And annual house prices eased to 2.2% from 2.7% in December. The Nationwide House Price Index reports that in January 2018 house prices were 0.6% higher than December 2017. And annual house price growth accelerated to 3.2% from 2.6% at the end of 2017.

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