Monday, 19 January 2015

Construction Market Activity 2014

In the final quarter of 2013, for the first time in 5 years, the construction industry saw growth over 3 consecutive quarters. This heralded the end of recession, and marked the beginning of growth for the construction industry. So what have been the highlights of 2014 so far? And what could 2015 hold?

ONS figures output in the construction industry 2014 
This charts shows output in the construction industry in 2014 began with slow growth, working its way to 3 consecutive months of growth from February onwards, ready to carry the growth through the summer, with very little change moving towards the end of the year.

The quarterly change for output has been consistently growing throughout the year, showing a positive trend.

The construction Industry – so that was 2014

2014 started on a positive note with Markit/CIPS PMI data showing the sharpest rise in construction output since August 2007 and The Halifax House Price Index reporting the eleventh monthly increase within a twelve month period. The market was encouraged by these early signs of recovery.

By spring Markit/CIPS PMI indicated that housing activity growth was approaching a 10 year high, signifying the start of housing leading the recovery.

And by the summer Nationwide House Price Index reported house prices had passed far beyond their peak in 2007. This then lead to discussions about over-heating in the housing market, and the possibility of a price bubble from un-sustainable growth.

Towards the end of summer construction growth was still being reported, with the ONS Output in Construction July 2014 figures reporting a year-on-year growth for the fourteenth consecutive month. But warnings were being made about growth being at its weakest since November 2013.

By Autumn Markit/CIPS PMI showed construction output rising at its slowest rate in five months. And the recent 2014 UK Construction Key Performance Indicators Annual Report found industry profitability had dropped to 2.1% – the lowest level since the Construction KPIs were first launched in 1999.

In November the ONS reported that output in the construction industry increased by 3.5% in September 2014 compared with September 2013. This was the 16th consecutive period of year-on-year monthly growth. And the CPA Construction Trade Survey reported construction activity rose in Q3, the sixth consecutive rise in activity. This despite a slowing in private housing output.

The latest analysis by Glenigan reports that the residential housing market, which has led growth in 2014, will remain an important factor in 2015. Increased activity in the housing market is expected to spread from London and the South East, as faster average earnings growth is seen. However it is now the office sector which is expected to take over as the leading growth for the construction industry, as demand for more quality office space spreads beyond London.

So what can we anticipate to happen in 2015?

We are not out of the woods. David Cameron has warned of the risk of another UK recession.

Short term construction growth, according to the CPA Autumn Forecasts, is still reliant on private housing, infrastructure and commercial. Yet The CPA say there is a positive outlook with Construction firms reporting rises in forward looking indicators such as orders and enquiries; With the CPA anticipating overall construction output to grow 5.3% in 2015.

In summary

2014 heralded the beginning of growth for the construction industry, since the start of the recession in 2007. This recovery was lead by the housing sector, which also prompted warnings of unsustainable growth.

Towards the close of 2014 we have seen a slowing in growth but continued optimism by the sector is reported. Moving into 2015 housing will remain a positive influence on construction growth, but the commercial sector is predicted to lead the way.