Friday, 16 September 2016

UK Construction Market Update - August

The Build UK State of Trade Survey for Q2 2016, shows a positive but stabilising picture of prospects for contractors, with 46% operating at over 90% capacity. Contractors also saw an increase in output of 22% for Q2 2016, significantly more than the 5% growth recorded in Q1 2016 and the 3% seen in Q4 2015. These figures though, reflect a pre-referendum market.

The CPA, in light of Brexit uncertainty, has developed a report on Construction Industry Scenarios – Summer 2016. This report replaces their Summer Construction Industry Forecasts and presents higher and lower bounds to reflect the extent of the uncertainty. Headline figures show total construction output is forecast to increase 0.4% in 2016, fall 0.6% in 2017 and rise 1.2% in 2018.

Encouragingly the Markit/CIPS UK Construction PMI reports that August saw the slowest pace of decline since the downturn began in June. The Index registered 49.2 in August 2016 an increase from the 85 month low of 45.9 in July 2016. Alongside this UK construction companies indicated a sustained reduction in business activity during August 2016. However the pace of decline was only marginal and much softer than seen during July 2016. New order volumes also moved closer to stabilisation, with the latest reduction being the least marked since May 2016. This provides reassurance as the Markit/CIPS UK Construction PMI is designed to provide one of the earliest indicators of market activity.

UK Construction PMI - August: 49.2
Yet the Savills Commercial Development Activity report for August 2016 showed an 89-month low in July of -18.0%. Expected falls in activity in office and retail & leisure, were blamed on the impact of Brexit on client confidence. And the August Glenigan Index reports that project starts in the three months to August were 7% lower than a year ago and 21% down on the previous three months. With the only positive sign seen in residential starts, which were 3% up on a year ago, despite being 15% down on the preceding three months.

The new government has reaffirmed its ambition to build one million new homes in England. The DCLG statistical release for house-building Q2 2016 shows a 6% increase in the number of new homes built in the past year, with 39,030 new homes being completed in the year to June 2016. Annual housing starts were 144,280 in the year to June 2016, an increase of 2% compared with the year to June 2015. This is reflected in Barratt Developments end of year results. Barratt Developments have reported the highest number of completions for eight years, which saw their pre-tax profits increase 20.7 per cent.

However the housing charity Shelter’s report: Capital Economics analysis warns of an 8% fall in house-building over the next year. They argue that key reforms to the house-building market must be made in order to reach the 1 million home target.

The Nationwide House Price Index reports in August 2016 house prices increased by 0.6%, with annual house price growth increasing to 5.6% from 5.2% in July 2016. The Halifax House Price Index reports that in August 2016 house prices decreased by 0.2%, and in the last 3 months (June – August) were 0.7% higher than the preceding 3 months. They also report that prices were 6.9% higher in the 3 months to August than the same period in 2015. The August 2016 RICS Residential Market Survey shows prices and sales volumes are now expected to rise going forward.

Philip Hammond, Chancellor of the Exchequer, has announced he will present his first Autumn Statement on 23 November.

Source: Competitive Advantage Consultancy Ltd