Construction reacts to the Autumn Budget and Market figures show mild recover in Q3

Construction reacts to the Autumn Budget

Phillip Hammond, in his Autumn 2018 Budget, declared ‘austerity is finally coming to an end’. He also confirmed that all spending plans would go ahead regardless of the outcome of Brexit, thanks to lower borrowing in the year to date. In short, key announcements for construction are:

  • PFI is to come to an end, current projects will be honoured but future schemes will be scrapped
  • The Help to Buy loan scheme has been extended until 2023
  • Government plan to introduce a permanent tax break for new non-residential structures and building
  • An extra £500m of funding will go to the Housing Infrastructure Fund, £291m of which is set to go to London. Hammond says this funding will unlock 650,000 new homes.
  • There was confirmation of a £28.8 billion National Roads Fund, which includes £25.3 billion in funding and a pipeline of projects for Highways England’s second Road Investment Strategy (RIS2) from 2020 to 2025
  • The Chancellor also introduced a £675 million Future High Streets Fund for town centre infrastructure investment

Reaction from the industry has been muted. The Construction Products Association comment that ‘There were few announcements specifically for the construction sector’. UK Construction Online in their budget reaction surmise that industry is reasonably happy, but the majority also expect another budget to be announced in Spring. And the ECA and BESA are pleased that the budget will give small business a boost.

Construction market figures show mild recovery in Quarter 3

The ONS report that Construction output increased by 2.1% in the three months to September 2018. The ONS also report that construction output increased by 1.7% between August and September, driven by an increase in all new work of 2.8%.

The IHS Markit/CIPS UK Construction PMI for October 2018 shows that UK construction companies indicated a sustained increase in business activity during the month. The overall rate of expansion has improved slightly since September and was the second-strongest in 16 months. The Index registered 53.2 in October, up from 52.1 in September. This was driven by the civil engineering sub-sector being the best performing for the first time since January.

The CPA’s latest Trade Survey is also positive, with construction experiencing modest growth in Q3, following a weather-related boost to activity in Q2. The survey also shows that during Q3, 27% of product manufacturers, 25% of main contractors, 16% of SME builders and 10% of civil engineering firms reported an increase in activity.

The construction material price index for all work increased 5.4% in the year to September 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 5.0%, 5.3% and 6.2%, respectively in the year to September.

The FMB published their State of Trade Survey for Q3 2018, showing that the quarter saw a slowdown in growth. Yet, despite Brexit nerves and rising costs, the construction SME sector is still growing, with 32% of FMB members reporting growth. Skills shortages remain, with record number of firms reporting difficulties in hiring bricklayers.

Growth for the UK’s construction sector next year has been downgraded amid Brexit uncertainty and on-going delays in the delivery of major infrastructure projects, restraining activity. The Construction Products Association’s Autumn Forecasts anticipates growth will remain flat in 2018, and rise by only 0.6% in 2019, a downward revision from its previous estimate of 2.3%.

The latest Hewes & Associates Construction Outlook shows that by the end of 2018, private housing will be double the volume seen in 2012. And the latest data reveals a modest weakening in the new build market, with reservations and starts easing over the last twelve months to 2018 Q2. Alongside an absence of price growth, this suggests a weakening in development over the short-term.

The September RIBA Architects’ Future Trends Workload Index dropped to +7, down from +11 in August. With the gap between London and the rest of the UK narrowing significantly over the month, and the previously upbeat North of England seeing a reduction to +12, from +41 last month. However London based practices remain the most cautious about future workload prospects.

Highest level of new home registrations in 11 years – whilst property transactions are at their lowest in two years

NHBC’s latest new home registration statistics show that 43,578 new homes were registered to be built in the UK during July to September, an increase of 15% on the 37,940 registered in the same period 12 months ago. This total makes it the highest quarter since Q3 2007, the highest level of new home registrations in 11 years.

But housing transactions show another month of annual decline. In September 2018, the number of property transactions in the UK totalled 98,400 according to HMRC, a 0.5% decrease from August and 2.7% lower compared to a year earlier. This marks the ninth consecutive month of annual decline. As a result, in Q3, the number of property transactions fell 0.8% quarter-on-quarter and 4.1% year-on-year to 293,580, the lowest number in two years.

According to UK Finance, the number of mortgage approvals for house purchases decreased 6.7% year-on-year in September, the twelfth consecutive month of annual decline. A 1.9% fall on a monthly basis. The value of these loans decreased 1.9% from a year earlier and fell 1.6% month-on-month.

The Halifax House Price Index reports that in October 2018 house prices increased 0.7% compared to September, following two consecutive monthly falls. The Nationwide House Price Index reports that in October 2018 house prices remained flat month on month, with annual house price growth slowing to 1.6%. And Halifax report that annual house price growth slowed to 1.5% in October from the 2.5% seen in September.

Finally, the UK BIM Alliance have published a report “A Fresh Way Forward for Product Data” It sets out to identify the key challenges to the digitisation of product data. An issue which has been under discussion for over 2 years and is important for all product manufacturers to understand.

 

Construction Outlook Oct18

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