A disappointing start to 2019 as Brexit-related uncertainty intensifies

The ONS report that construction output saw a sharp decline in December 2018, as the month-on-month series decreased by 2.8% compared to November, making this the largest month-on-month fall in growth since June 2012. Level of output in 2018, when compared to 2017 saw a 0.7% increase, the lowest level of annual growth since 2012.

The IHS Markit/CIPS UK Construction PMI for January 2019, points towards a loss of momentum for the UK construction sector, as the index registered 50.6 in January; down from 52.8. This reading marks the slowest expansion in the construction sector since March 2018, with all three categories of construction output reporting weaker growth. Alongside this a number of the survey respondents noted that Brexit uncertainty had led to hesitancy among clients and a corresponding slowdown in progress on new projects.

In their latest Construction Industry forecasts, the CPA has downgraded the outlook for construction output, partly due to uncertainty around the UK’s withdrawal from the EU persisting. The 2019 construction output was previously forecast to rise by 2.3%, however output is now anticipated to rise by only 0.3%.

The RIBA Architects’ Future Trends Workload also indicates a considerable fall in optimism, reporting a reading of +3, down from +10 in November. The most significant fall was reported by firms based in the Midlands and East Anglia. The North of England continues to remain the most optimistic area.

In contrast the latest Regional Crane Survey from Deloitte provides positive reading, with workloads in Manchester and Leeds hitting record levels. Leeds has recorded the highest level of construction in the city center since the Leeds crane survey began in 2002. Manchester is undergoing a residential boom with close to 15,000 units being built, double the number of just 2 years ago. Yet there are warnings that challenges may arise as we enter the 2020s, as investment will need to be supported by essential infrastructure.

The construction products manufacturing sector ended 2018 with a stronger performance than it started with. According to the CPA’s latest State of Trade Survey  manufacturers reported a broad increase in product sales for Q4 2018. There is also optimism for the industry, as it looks ahead 2019. Yet Rebecca Larkin, CPA Senior Economist warns that perhaps near-term stockpiling further down the supply chain may have contributed to this optimism, over what is an otherwise hazy outlook.

And the FMB’s latest State of Trade Survey showed that workloads for construction SMEs grew in Q4 2018. With 37% of construction SMEs reporting rising workloads. The results represent 23 consecutive quarters of growth. Despite the mounting problems facing small building firms, which include; 42% of builders detecting signs of a weakening housing market and 87% of builders anticipating that material prices will rise further in the next six months.

A notion backed by the recent Construction Material Price Index, which shows prices for new housing, repair and maintenance and other new work rose 3.5%, 3.6% and 4.6%, respectively in the year to December. The construction material price for all work, in the year to December 2018, increased 3.7%, the slowest rate of annual growth since December 2016, and declined 0.1% on a monthly basis.

Property transactions remain flat as house prices fall

The latest report from the National Audit Office, Housing in England: Overview,  raises a series of concerns around the governments planning system. Casting doubt on the government’s goal for 300,000 new homes a year by the mid-2020s. Despite this research from Glenigan shows planning applications by housebuilder’s increased by 7% in 2018. It reports the overall pipeline of homes proposed by private developers and RSLs passing 200,000 for the first time since Glenigan’s construction analysis began.

According to HMRC, the number of UK property transactions in December totalled 102,330. This was broadly flat at -0.1% compared to November 2018 but was 3.6% higher compared to a year earlier. For the whole of 2018, the number of property transactions in the UK totalled 1.2 million, a decrease of 2.5% from 2017. o

According to the Bank of England, in December, the number of mortgages approved for house purchase increased 3.7% on an annual basis, a decrease of 0.2% when compared to November. The value of these loans was 2.7% higher than a year ago but is a 0.7% decrease month-on-month. And UK Finance report that the number of mortgage approvals increased 6.2% year-on-year in December, following 14 consecutive quarters of decline since October 2017, but fell 1.1% on a monthly basis. The value of these loans increased 8.1% from a year earlier but declined 1.9% month-on-month.

The ONS report average UK house prices fell by 0.1% on a monthly basis in November 2018 compared with a decrease of 0.3% during the same period a year earlier. And average prices grew by 2.8% in the year to November 2018, up slightly from the 2.7% in the year to October 2018.

The Halifax House Price Index reported that in January 2019 house prices fell 2.9% compared to December, the sharpest monthly fall since April 2018. And in the three months to January they increased 0.8% compared with the same period a year earlier. The Nationwide House Price Index reported that in January 2019 house prices increased 0.3%, with annual house price growth slowing to 0.1%. Nationwide comment that it is likely that the recent slowdown is attributable to the impact of the uncertain economic outlook on buyer sentiment.

Finally, Construction Excellence has announced the launch of their new research Constructing the Future – the challenges and opportunities for the construction sector. This research examines key industry matters including the affect Brexit is having on the industry, the growing skills shortage, the housing crisis, and government policy, and the digitisation of the industry.

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