Civil engineering drives construction growth in October

UK construction growth increased during October, driven by a rebound in civil engineering activity.

Having declined in both August and September, civil engineering activity grew at the strongest pace since July 2017. Housing and commercial construction also expanded, but at weaker rates.

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index rose to 53.2 in October, the second highest level in 16 months. This was up on 52.1 in September and against the no-change reading of 50. A figure below 50 indicates contraction.

However, there was a slower rise in new business volumes, with firms mentioning intense market competition and delayed final decisions from clients. Business expectations fell to almost a six-year low.

Consequently, input purchasing increased more cautiously, at the slowest rate in seven months. Despite this, delivery times for construction products and materials continued to lengthen and firms continued to report stock shortages at vendors.

Cost pressures remained strong, despite the rate in input price inflation falling to a 27-month low, with companies highlighting increased costs for fuel, labour, timber and steel.

Duncan Brock, group director at CIPS, said: “These results point to the sector getting stuck in the mud as we approach March 2019, and with ongoing supplier delays and stock shortages, the sector may not be able to respond quickly enough anyway should there by a sudden upturn in fortunes.”

Trevor Balchin, economics director at IHS Markit, said: “Construction firms continued to raise headcounts at a strong pace, suggesting they are not expecting an imminent contraction in demand. That said, if the new orders and expectations indices remain at current levels or fall further, the employment index could also drift back towards the 50 no-change mark.”

Photo: From Shutterstock

Construction slows but civils surge

Civils are a bright spot on an otherwise dull horizon for construction, according to a recent report.

The latest figures from Glenigan, which provides data on the UK construction market, show a drop in both project starts and in value of the work started in the last year. But civil engineering saw a 35% increase on 2017 due to strengthening in both infrastructure and utilities projects.





According to the report:

• Starts in the three months preceding July were 15% down on last year
• Residential starts were 20% lower than a year ago, with a weakening in both private and social housing projects
• Non-residential project starts were 18% lower than last year
• Civil engineering was 35% higher than last year due to a 12% increase in infrastructure starts and an 80% increase in utilities work
• The value of work starting on-site in the three months preceding July was 15% lower than last year
• London saw the sharpest decline in starts, at 45% down on last year
• The South East, East of England, Yorkshire & the Humber, Northern Ireland and Scotland also saw double-digit falls of 16%, 18%, 30%, 37% and 11% respectively
• The value of project starts in the East Midlands was 41% up on last year and was 14% higher in both the West Midlands and North East.

John Newcomb, CEO of the Builders Merchants Federation, said: “The private new homes sector has been extremely robust in recent years, so it is somewhat surprising to see residential starts fall back at this stage.

“It may be a hangover from the poor weather at the start of the year.

“However, repair, maintenance and improvement work continues to grow, with the Office of National Statistics reporting 0.9% growth in overall construction output.

“The BMF’s Builders Merchants Building Index reported 7.2% growth in sales value over Q2 2018, and we remain confident of continued growth throughout the rest of the year.”

Steve Turner, Director of Communications at the Home Builders’ Federation, added: “We have seen a massive 74% increase in the number of new homes built over the last four years, and all indicators suggest output will continue to grow. Demand for new homes remains extremely strong.

“Starts on new sites in the early part of the year were affected by the adverse weather that also hindered output on existing sites. We anticipate any falls will be reversed in the latter part of the year as builders continue to strive to build more, desperately needed homes.”

Allan Durning, Managing Director of the H&B Buying Group, said:

“Builders’ merchants have seen many cycles over the previous decades, and we manage through them.

“What’s interesting with the timing of this announcement is the current round of shortages of key primary building materials such as bricks, and Class B engineering bricks in particular. Plasterboard, and insulation amongst others.

The housing space remains buoyant as we know, fuelled by taxpayer’s subsidiaries, and RMI is holding up given the desire to ‘improve and not move’ at local levels.

“But we have to be conscious that capital projects, with the Brexit implications, is going to impact on investor confidence. Major organisations such as Barclay are currently commenting on their concerns about demand going forward.”

Latest survey states that the Construction sector buyers are 'busier than ever'

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index climbed to 55.8 in July, up on 53.1 in June and against the no-change reading of 50.

Growth was underpinned by the fastest increase in residential work in more than two-and-a-half years, with commercial work picking up and civil engineering increasing only moderately. Respondents commented on improving demand conditions and higher volumes of new project starts.

Despite an upturn in tender opportunities, construction companies are cautious about the business outlook over the next 12 months with the degree of positive sentiment unchanged since June and weaker than the long-term average.

Input cost inflation eased to a three-month low in July but remained strong in comparison to the post-downturn trend. Respondents reported rising fuel bills and higher prices for steel-related inputs.

Duncan Brock, group director at CIPS, said: “Purchasing managers were busier than ever this month with a welcome surge in new orders and the fastest rise in construction work since May 2017.

“The fly in the ointment was longer lead times across the construction supply chain. Rising demand meant that supply chains creaked under the strain and delivery times lengthened to the greatest extent seen in 12 months.

“Material shortages, limited inventories and capacity pressures bore down, as constructors caught up on previous weather delays and stocked up for new orders.”

Construction Output set to fall for first time in 6 years but growth predicted for 2019 and 2020

The UK’s construction industry is expected to experience a moderate fall in 2018, following five years of consecutive growth. The Construction Products Association’s Summer Forecasts anticipate growth for the whole of 2018 to fall 0.6%, before accelerating to 2.3% in 2019 and 1.9% in 2020, with house builders the primary drivers of growth for the whole industry.

In private housing, first-time buyer demand, enabled by the government’s Help to Buy scheme, continues to boost sentiment and encourage an increase in housebuilding activity outside London. The sector’s output is forecast to rise 5% in 2018 and 2% in 2019. The infrastructure sector also remains a primary driver of growth for the whole construction industry, with output forecast to hit a historic high of £23.6 billion by 2020, driven by large projects such as HS2 and Hinkley Point C. However, the sector will be hoping government will push to ensure delivery on the ground with work on both projects already significantly delayed. Without the forecast growth in infrastructure and private housing activity, total construction output would fall by 3% in 2018 and remain flat in 2019.

The demise of Carillion resulted in a poor performance for the industry at the start of the year, which combined with the bad weather, lost UK construction £1 billion of work. It is estimated 60% of this work may be recovered, but Carillion’s collapse will cause further delays at two major hospitals as work on the £335 million Royal Liverpool University and Birmingham’s £350 million Midland Metropolitan hospitals is on hold until at least 2019.

Brexit uncertainty continues to drive the sharpest decline for construction in the commercial sector, particularly felt in the offices sub-sector which is expected to fall 20% in 2018 and a further 10% in 2019. Meanwhile, the shift to online shopping is causing woes for the high street, with new retail construction expected to fall by 10% this year.

Noble Francis, Economics Director at the Construction Products Association said: "Clearly the first quarter of the year was difficult for the industry due to the demise of Carillion and the bad weather. Things improved markedly in the second quarter due to a catch-up in work as we would have expected but, overall, it’s mixed fortunes for contractors at the moment. On the positive side, house builders are keen on accelerating building rates outside of London and that is expected to be enough to offset sharp falls in house building in the capital.

"Firms working on major infrastructure projects also have a lot of work in the pipeline. Infrastructure output is forecast to rise by 3% in 2018 and 13% in 2019. This growth is highly dependent on large projects such as HS2 and Hinkley Point C, the first of the new nuclear power stations but, as ever, there remain concerns about government’s ability to deliver infrastructure projects without the cost overruns and delays that we have seen on Crossrail and HS2 recently.

"On the negative side, the elephant in the room is clearly Brexit uncertainty, which has had a big effect on international investment, especially where it is high up-front investment for a long-term rate of return, which is now highly uncertain. It badly affects demand in sectors such as prime residential in London, commercial offices towers and industrial factories, which is dependent on manufacturing.

"Overall in construction, there is forecast to be a slight fall in activity, of -0.6%, in 2018 after five consecutive years. However, in 2019, we are anticipating of growth of 2.3% due to house building and infrastructure."

Hot Summer starts to make up for cold Winter for Construction

The Construction Products Association’s State of Trade Survey for 2018 Q2 shows that the £56 billion UK construction products manufacturing industry began its catch-up of activity lost to adverse weather conditions during the first three months of the year.

Construction product sales act as an early indicator of wider activity in the supply chain and these results signpost to a rise in total construction output levels over the next 12 months.

Heavyside manufacturers reported an increase in activity, with sales in Q2 rising for 40% of firms, following two previous quarters of falling sales. For light side manufacturers,  29% of firms on balance reported a decrease, which was the weakest performance since 2012 Q3. This reflects the lagged impact of the industry’s decline in Q1, as light side products such as insulation, boilers, glass and lighting tend to be used at the end of the building process. 

Manufacturers anticipate a return to growth in the coming quarters, with 43% of heavy side firms and 27% of those on the light side expecting an increase in sales over the next 12 months. Input cost inflation continues to persist, however, particularly for the energy-intensive heavy side, which is experiencing the pass-through of rising global commodity prices on fuel and energy costs.

Rebecca Larkin, CPA Senior Economist said: “These results fit the profile of construction catch-up from a weather-affected Q1. As we’ve moved from a freezing Spring to a hot Summer, groundworks and work on external structures has been able to resume, and this has been reflected in increased sales for heavy side manufacturers. The disruption in Q1 is likely to have delayed interiors and finishing works starting on site which is evident in the decline in light side sales during Q2.

“Manufacturers’ product sales, capacity utilisation and new hiring are all still expected to increase over the next year, but price pressure is coming from all directions across fuel, energy, raw materials and labour, which is likely to be felt throughout the construction supply chain.”

Key survey findings include:

• A balance of 40% of heavy side firms reported that construction product sales rose in the second quarter of 2018 compared with the first quarter. 29% of light side firms, on balance, reported a fall in sales in Q2.
• On an annual basis, sales increased for 20% of heavy side firms and 12% of firms on the light side, on balance
• On balance, 43% of heavy side manufacturers anticipated a rise in sales in the next year, increasing from a balance of 37% in the previous quarter
• On the light side, 27% of firms expected an increase in product sales in the next year, compared to a balance of 16% in 2018 Q1
• 27% of heavy side firms increased headcount in the past year, the lowest balance in nearly five years
• Annual cost increases were reported by 73% of manufacturers on the heavy side and 50% on the light side
• Raw materials costs rose according to 87% of heavy side manufacturers and 88% of those on the light side.

Image: Via Shutterstock

ONS figures show that Construction growth is at its fastest monthly rate for 2 years

More good news for the UK's Construction sector as ONS figures published last week show that construction output increased 2.9% month-on-month in May.

This was the fastest monthly growth rate in two years, reflecting an uptake in activity following adverse weather conditions during the first quarter. Compared to a year earlier, output rose 1.6% but contracted by 1.7% on a rolling three-month basis. This fall captures the £247 million drop in construction work in March during the Beast from the East, however.

Rebecca Larkin, Senior Economist at the Construction Products Association, commented: “The construction industry appears to have caught up with some of the work lost in February and March due to the freezing ground conditions and snow disruption. Month-on-month gains were evident across all sectors but were strongest in private housing repairs, maintenance and improvement (RM&I), the third largest construction sector, due to warmer weather and longer days.    

Take a look at the latest Construction Sales Jobs

“Private housing new build was 8.4% higher than a year earlier, which points to strength in activity beyond basic catch-up as the industry enters the busier Spring and Summer selling season. However, for the year to date, overall construction output remains 0.3% lower than a year earlier, with particular weakness in public non-housing (mainly education and health) and commercial, where a significant fall in new orders signals smaller pipelines of work.”  

Snow stops play for the Construction sector

For the Australian cricket team, ball-tampering stopped play and halted their success, but in the construction sector snow stopped play during March! The weather in March caused the fastest drop in activity since 2016 according to the latest PMI. Hopefully, as construction workers come back to play with the improving weather output will hit the weather back over the boundary for six!

Supply chains were “woefully unprepared” for the unusually bad weather, which was the key factor behind the drop in construction output. Snow-related disruptions had a particularly bad impact on civil engineering projects, the report said.

The CIPS/IHS Markit UK Construction Purchasing Managers’ Index (PMI) fell to 47.0 in March, down from 51.4 in February. It is the first time in six months that the index has fallen below the no-change score of 50. The index is compiled through a monthly survey of buyers – a score above 50 represents growth, while a score below indicates contraction.

Duncan Brock, group director of CIPS, said: “Snow stopped play in March, as the unseasonal weather restricted overall activity, lengthened delivery times and triggered the fastest drop in new orders since July 2016.

“It’s a few years since the UK experienced such bad weather in March, and it’s obvious that supply chains were woefully unprepared to deal with the disruptions.”

Brock added that while the March figures could be seen as a “temporary blip”, without a strong pipeline of work or strong risk strategies, the sector’s health remains in question.

While civil engineering and commercial activity were worst hit, housing became the best performer of the month. But growth here was still softer than most of 2017, likely caused by more systemic problems than the weather. Brock said: “Respondents also cited continuing Brexit-related uncertainty and disappointment over performance of the UK economy.”

There was some good news in the sector. Price inflation was the lowest since June 2016 as the impact of the weak pound has largely dissipated, and job creation was the strongest so far this year indicating optimism for the months ahead.

Manufacturing PMI figures for March were also released this week and indicated a steady rate of growth in the sector. The CIPS/IHS Markit Manufacturing PMI increased slightly to 55.1 in March, up from 55.0 in February. Brock said this was “a steady if unremarkable performance”.

Image from Shutterstock

Construction Output Falls for a Second Quarter

ONS figures published last week show that construction output contracted 0.9% in the third quarter of 2017. This is a downward revision from the preliminary estimate of a 0.7% decline released in October and follows the 0.5% fall in output recorded in Q2.
Rebecca Larkin, Senior Economist at the Construction Products Association, commented: “At a headline level, today’s data shouts ‘construction recession’, marked by two consecutive quarters of falling output. However, output remains at relatively high levels – 1.1% higher than a year ago and 7.1% higher than 2015 Q3.

“There is also a clear variation in performance by sector, as highlighted in the CPA’s forecasts. Private housing output rose 1.8% to a record high during the quarter, with demand and confidence sustained by the Help to Buy equity loan. The £10 billion extra funding for the policy announced last month will maintain impetus in house building, with greater certainty over affordable rent-setting also supporting building by housing associations.

“Nevertheless, areas of weakness include private commercial, where new orders have fallen for three quarters and signal a lack of offices and retail projects to replace those now coming to an end. This is echoed in the public non-housing sector, which is suffering from lower volumes of work on schools and a dearth of new large hospitals projects.”

Image: Via Shutterstock 

August shows marginal increase in UK Construction Output

August survey data indicated that the UK construction sector continued to experience a slowdown this summer. Reduced levels of commercial work were a key source of weakness, which offset robust growth in residential building. 

There were also signs of a sustained soft patch ahead, with new business volumes falling for the second month running. Survey respondents linked subdued demand to reduced business investment and heightened economic uncertainty. As a result, construction firms exerted greater caution in terms of their staff hiring, with employment numbers rising at the slowest pace since July 2016. 

Key findings:

• Marginal increase in overall construction activity
• Robust rise in house building offset by marked
• fall in commercial work
• New business declines for the second month running

At 51.1 in August, the seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI® ) remained above the 50.0 no-change threshold for the twelfth month running. However, the latest reading was down from 51.9 in July and pointed to the weakest overall UK construction performance since August 2016. A key reason for the slowdown was a lack of new orders to replace completed projects, according the survey respondents. 

Residential building was the only area to buck the overall trend in August, with housing activity rising at a robust and accelerated pace since the previous month. Meanwhile, civil engineering activity was close to stagnation and commercial work dropped at the fastest pace since July 2016. Reports from survey respondents widely suggested that concerns about the UK economic outlook had weighed on the commercial development sector, with clients opting to delay spending decisions and, in some cases, scale back planned projects. 

Total new order volumes dropped for the second month running in August, although the rate of contraction was only marginal and slower than seen in July. Survey respondents continued to cite reluctance to commit to new construction projects, linked to general economic uncertainty and less favourable market conditions. 

Mirroring the subdued trends for business activity and incoming new work, latest data revealed a slowdown in job creation to its weakest since July 2016. Construction firms also recorded a decline in sub-contractor usage, which continued the downward trend seen since March. 

Supply chain pressures persisted in August, despite stagnation in input buying. Longer delivery times were linked to ongoing stock shortages among vendors. 

Tim Moore, Associate Director at IHS Markit and author of the IHS Markit/CIPS Construction PMI® : 
“UK construction companies indicated that lacklustre growth conditions persisted during August. Civil engineering work stagnated, which meant that the construction sector was reliant upon greater house building activity to deliver an outright expansion in output volumes. Commercial development remained by far the worst performing category, with business activity falling at the fastest pace since July 2016. 

“Survey respondents noted that subdued business investment and concerns about the UK economic outlook had led to a lack of new work to replace completed projects, especially in the commercial building sector. 

“There were signs that UK construction firms are bracing for the soft patch to continue into this autumn, with fragile business confidence contributing to weaker trends for job creation and input buying during August.”

On a more positive note, cost pressures were the weakest since September 2016. Survey respondents noted that exchange rate depreciation continued to drive up prices for construction materials, but some commented on successful negotiations with suppliers against a backdrop of softer market conditions.

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, said: 

“The sector hit a roadblock this month as purchasing activity slowed for the third month and new business wins were hard to come by. Reduced Government spending, economic uncertainty and Brexit-delayed decision-making among clients were largely to blame. 

“The struggling commercial sector drove this disappointment, languishing under the pressure with the fastest drop in activity in over a year. Job creation was nothing to shout about and showed signs of a slowdown, as companies reined back additional spending. 

“But any further drag on the construction sector overall was halted by the continuing strong performance by housebuilders, defying expectations with a good month. The sector was also offered some respite from the ongoing march of rising prices as input price inflation weakened. 

“This good fortune in prices is unlikely to continue as suppliers scrabble to match the demand for an increasing number of materials in short supply and delivery times lengthened. Price rises will become inevitable if builders have to compete to get what they need. 

“In the near-term future, without those new orders waiting in the wings, the performance of the construction sector is likely to continue to be downbeat.”

Image: Builder worker in safety protective equipment installing concrete floor slab panel at building construction site. Image ID: 125206808. Copyright: Dmitry Kalinovsky www.shutterstock.com

Builders' Merchant Sales for Q2 2017 up by over 5%!

New data released in the BMF’s Builders Merchants Building Index (BMBI) confirms a continuing positive trend for UK builders merchants with Q2 sales increasing by 5.3% (when adjusted for there being two fewer trading days in period) compared to Q2 2016. This is positive news for the building industry, especially in light of some disappointed industry research released in the last few weeks.

The actual Q2 year on year sales figure (for 61 days trading compared to 63 in 2016) is still positive at +1.9%. Furthermore, year to date sales figures to June are 3.8% higher than for 2016, a period with the same number of trading days.

The majority of product areas performed well in Q2. Sales of Ironmongery (+8.4%) and Kitchens and Bathrooms (+8.3%) led the way in adjusted year on year growth for the quarter.

The three largest product groups also performed well with sales of Timber & Joinery up by +6.0%, Landscaping +5.9% and Heavy Building Materials +5.6%. Sales of Plumbing, Heating and Electrical products also showed growth at +3.8%, although the increase was lower than the total builders merchants channel.

The BMBI tracks builders merchants actual sales using point of sale data collected by GfK that represents over 80% of the value of the builders’ merchant market.

The Q2 results appear to tell a different story to the trend reported by the Office of National Statistics earlier this month, in which overall construction output fell by -1.3% in the three months to June compared with Q1 and rose by just +0.4% on the same period last year.

Commenting on the results, John Newcomb, BMF CEO said: “The majority of trade indicators are finding that order books are being sustained by private housing and RMI work – the mainstay of many a merchant’s business – while commercial sectors are falling behind. Even the ONS reported a year on year increase in housing of +9.4% for the quarter.

Take a look at the latest builders' merchant jobs >>

“I have visited over 20 BMF members in recent weeks and every one reported sales growth in the first half. While they have seen little evidence of a slow down in overall sales, they are reporting more price increases, an inevitable result of the falling exchange rate, and shortages in certain product areas. The merchant sector is showing resilience at the moment, but it would be foolish not to consider the possibility of tougher trading conditions as we move into 2018.”

Richard Frankcom of GfK adds: “Once again the builders merchants deliver great year-on-year sales value growth across the first six-months of 2017, coming from a variety of product categories. However, we cannot ignore the contribution that increased costs and price increases have had on this continued value growth.

“Going forward, we urge the industry to keep a close eye on trends impacting consumers’ ability to carry out renovations and improvements. Bank interest rates and real wage trends impact consumers’ ability to finance home improvements or house moves. We have just seen a significant drop in intentions to invest in home-related projects which could be felt by the merchants as early as the end of this year. However, home improvement projects could still be one of the best investments home owners and landlords can make right now. The encouragement and evidence for them to do so needs to come from somewhere during these uncertain economic times.”

Image: shutterstock_403530055

UK construction industry growth slows to lowest in six years

Growth prospects for the construction industry in 2018 have been downgraded as the UK prepares to leave the EU, according to the latest forecasts by the Construction Products Association (CPA). Output is expected to soften as a slowing economy, falling real wages and rising costs adversely affect the industry, growth for 2018 is therefore only expected to rise by 0.7%, the slowest in six years, and a downward revision from 1.2% in previous forecasts.

View the Summer 2017 Construction Industry Forecast here.

For now, activity on site is high and output is expected to rise by 1.6% in 2017, a revision upwards from 1.3% in previous forecasts. This will be partly due to a sharp rise from new contracts and activity in the £6.9 billion public housing repair, maintenance and improvements to deal with short-term urgent measures that will need to be made in light of the Grenfell Tower fire.


An increase in infrastructure activity and private housebuilding are expected to be the primary drivers of growth over the next two years which will help offset a sharp fall in the commercial and industrial sectors. Growth in infrastructure will be due to major projects in rail and water & sewerage such as HS2 and the Thames Tideway Tunnel, with activity forecast to grow by 7.4% in 2017 and 6.4% in 2018. Growth will be reliant on delivery of these projects and the extent of the continued delays to main works at Hinkley Point C have resulted in it no longer included in the CPA forecasts.  

Growth for the industry in 2018 will also be heavily reliant on private housebuilding, however the sector is still reliant on Help to Buy equity loans to drive housebuilding numbers. The policy is in place until 2021, which is expected to support demand for new build and drive growth in private housing starts of 3.0% in 2017 and 2.0% in 2018. However, this is slower than in previous years given uncertainties over the strength of consumer confidence and falls in real earnings.

Looking further ahead, growth for 2019 is projected to be 1.8%, but given the unprecedented economic and political uncertainties following the lack of a significant majority for the UK government as the UK leaves the EU, the risks around this forecast are considerable.

Look at the latest construction sales jobs here>>

Noble Francis, Economics Director at the Construction Products Association said: "Construction firms are still reporting that activity remains high and there are still lots of cranes around. But there are clear signs that construction output is slowing and that next year, in particular, will be difficult for the industry. Prospects for construction have been adversely affected by slowing UK economic growth and falling real wages on one side and sharp rising costs on the other. A fall in new investment, especially where it is large international investment looking for a long-term rate of return, is forecast to lead to declines in the commercial and industrial sectors."

"Despite the slowdown in the general housing market, particularly in London, house builders continue to increase supply, albeit more slowly than in recent years. Currently, more than a third of new house building is being sustained by the government's Help to Buy and should continue to do so over the next 18 months if the wider economy and housing market don’t slow further. However, if economic conditions do deteriorate further, house builders can react quite quickly if necessary.

"Increases in infrastructure investment are also expected to offset these declines and be the key driver of any construction growth going forward. However, concerns regarding rising costs and delays to major projects continue to dog the sector so there remains a high degree of uncertainty around infrastructure growth in the next few years. And this infrastructure investment will be vital for the industry as a whole. Without it, total construction output would fall by 1.0% in 2018."

Read the key facts of the 2017 Q2 State of Trade Survey for UK Construction from the CPA

The CPA’s State of Trade Survey for 2017 Q2 reveals that UK construction product manufacturers experienced growth in sales and activity for the 17th consecutive quarter, but higher input costs and rising uncertainty has dampened manufacturers’ views for the near-term future.

Results of the survey showed that among heavy side manufacturers, only 7% anticipated a rise in sales in the next quarter, a decline from the 68% who anticipated a rise when asked in 2017 Q1. A sharp rise in input costs was also reported in Q2, with 93% of heavy side manufacturers and all of those on the light side reporting an increase in costs compared with a year earlier.

The strongest inflationary pressures came from raw materials, fuel and energy, owing to depreciation in Sterling during 2016, alongside skills shortages pushing up wage bills.


The construction products manufacturing industry has an annual turnover of £55 billion, directly providing jobs for 300,000 people across 22,000 companies. Products range from ‘heavy side’ materials such as steel, bricks, timber and concrete to ‘light side’ products such as insulation, boilers, glass and lighting. On an annual basis, 47% of heavy side firms reported that sales had increased in Q2, whilst on the light side, 45% of firms reported that sales were higher than a year earlier.

Rebecca Larkin, CPA Senior Economist said: “It was an eventful quarter on the political front, with the announcement of a snap general election and the resulting hung parliament adding to existing uncertainty over the path for Brexit negotiations. Despite healthy growth in the second quarter, construction product manufacturers have turned more pessimistic over performance for the rest of the year, reigniting concern that the triple hit of imported inflation in raw materials, higher fuel and energy prices and the persistent pressure on labour costs will have a negative impact on demand and construction activity over the next 12 months.

 "An increase in overall costs was reported by 93% of heavy side manufacturers and all of those on the light side. Inflation is expected to endure as similar proportions anticipate that costs will continue to climb over the next year. Government’s ability to progress the pipeline for large public sector and infrastructure projects is now more important than ever as a means of sustaining activity when private sector decision-making may be stalling.”

 Key survey findings include:

• A balance of 40% of heavy side firms and 55% of light side firms reported that construction product sales rose in the second quarter of 2017 compared with the first quarter
• On an annual basis, sales rose for 47% of heavy side firms and 45% of firms on the light side, on balance
• On balance, 7% of heavy side manufacturers anticipated a rise in sales in Q3, decreasing from a balance of 68% in the previous quarter
• On the light side, 20% of firms expected an increase in product sales in the next quarter, compared to a balance of 47% in Q1
• Annual cost increases were reported by 93% of heavy side manufacturers and 100% of those on the light side
• Raw materials costs rose according to 87% of heavy side manufacturers and 100% of those on the light side
• 93% of heavy side manufacturers and 90% of light side manufacturers anticipate a rise in costs over the next year.

The Construction Products Association represents the UK’s manufacturers and distributors of construction products and materials.  We are committed to raising the profile of our industry and members’ businesses, helping grow the market and reducing regulatory risk.  The sector directly provides jobs for 300,000 people across 22,000 companies and has an annual turnover of more than £55 billion.  The CPA is the leading voice to promote and campaign for this vital UK industry.

The CPA produces a range of economic reports including the quarterly Construction Industry Forecasts, Construction Trade Surveys and the State of Trade Surveys.  All are available to members or subscribers via our website.

Image: From shutterstock_136321814

UK construction activity bounces back to hit a four-month high!

UK construction activity rose to a four-month high in April according to the latest survey snapshot of the sector, suggesting a reasonable start to the second quarter of 2017 for builders.

The Markit/CIPS Purchasing Managers' Index rose to 53.1 in the month, up from 52.2 in March and above City analysts' expectations of 52. Any reading above 50 indicates growth.

Civil engineering activity was the highest in a year. House building was at its liveliest since last December according to the survey.

The rate of employment growth was the highest since last May 2016.

However, commercial building remained subdued with a lower reading than in March.

"Commercial work likely will remain depressed by Brexit uncertainty, and labour shortages across the entire construction sector may become more acute as immigration from the EU declines," said Samuel Tombs, an economist at Pantheon.

The construction PMI showed an alarming dip in the immediate wake of last June's Brexit referendum result, but bounced rapidly back. The latest reading follows a better than expected figure.

Photo: Shutterstock

Great news for the industry as Construction forecasts beat post-Brexit expectations

Really encouraging news as the Construction Products Association has announced that activity in the construction industry is rising at a faster pace following the EU referendum than initially expected according to latest forecasts.

Construction output is expected to rise each year between 2017 and 2019, by 1.3% in 2017, 1.2% in 2018 and 2.3% in 2019.

While the figures may fuel hope of a resilient UK construction industry amid Brexit-related anxieties and rising costs, the growth masks a considerable difference in activity across the key construction sectors. Infrastructure projects are expected to be the industry's main growth engine, driven by a strong National Infrastructure and Construction Pipeline valued at £300bn over the next four years.

See the latest construction sales jobs>>

In particular, growth to 2019 is expected to be primarily driven by a 34.5% increase in infrastructure activity due to major projects in the energy, rail and water sub-sectors, which would offset expected falls in commercial and industrial construction.


Housebuilding is also expected to remain a key source of growth, with private housebuilding starts rising by 7.2% between 2017 and 2019, underpinned by a continued upward trend in house prices, demand from first-time buyers and the Help to Buy equity loans. In 2016, Help to Buy accounted for 39.8% of new home sales in Q4 and has been a significant government policy for supporting building activity.

Noble Francis, economics director at the CPA, said: "Construction output has been sustained post-referendum, primarily due to projects signed up to before June 2016. Activity is expected to remain strong in the first half of this year in all the key construction sectors: private housing, commercial, industrial and infrastructure. Looking further forward, a fall in contract awards during the second half of last year is likely to impact greatest where Brexit uncertainty affects sectors requiring high investment up front for a long term rate of return, such as commercial offices and industrial factories.

"We forecast that output in commercial offices will fall 1.0% this year and a further 12.0% in 2018. Industrial factories construction is expected to fall 5.0% in 2017 and 4.0% in 2018. However, this is expected to be offset by strong growth in infrastructure and private housing. Infrastructure construction is expected to increase by 7.3% in 2017 and 11.1% in 2018, primarily driven by major projects such as main works at Hinkley Point C and High-Speed 2. Private housing starts are forecast to rise 3.0% in 2017 and 2.0% in both 2018 and 2019.

"Looking forward, given the dependence of construction industry growth on activity in the infrastructure and private housing sectors, it is essential that government focuses on delivery of infrastructure projects in its National Infrastructure and Construction Pipeline. In addition, as major housebuilders are reliant upon Help to Buy equity loans, which are due to end in 2021, it is vital that government outlines its plans early to support house building growth as we approach the end of the scheme."

Pic: Shutterstock

UK construction product manufacturers registered an increase in sales and activity in the first quarter of 2017

The CPA’s latest State of Trade Survey reports that UK construction product manufacturers registered an increase in sales and activity in the first quarter of 2017. This extends the industry’s period of growth to four years, despite a backdrop of increasing input cost pressures.

The construction products manufacturing industry has an annual turnover of £55 billion, directly providing jobs for 300,000 people across 22,000 companies. Products range from ‘heavy side’ materials such as steel, bricks, timber and concrete to ‘light side’ products such as insulation, boilers, glass and lighting.  On an annual basis, 65% of heavy side firms reported that sales had increased in Q1, whilst on the light side, 38% of firms reported that sales were higher than a year earlier.

In Q1, 73% of heavy side manufacturers and 80% of those on the light side reported an increase in costs, with input costs for raw materials, fuel and energy exerting the strongest pressures, owing to the depreciation in Sterling during 2016. Nevertheless, manufacturers envisage a continued rise in activity in the second quarter of this year. Among heavy side manufacturers, 68% on balance anticipate a rise in sales in Q2 and a balance of 47% of light side manufacturers anticipate a rise during the same period.

Rebecca Larkin, CPA Senior Economist said: “Construction product manufacturers have shaken off the pessimism over future performance evident at the end of last year and appear more confident that further rises in costs will not have a negative impact on demand and construction activity over the next 12 months.

“Heavy side manufacturers were most exposed to the effects of Sterling’s depreciation with 93% of firms reporting a rise in raw materials costs and 69% reporting higher costs for fuel and energy in Q1. On balance, they were also the most optimistic on near-term sales expectations, implying that the wider construction supply chain is actively managing its cost pressures.  

“With Brexit-related uncertainty still providing a downside risk to decision-making, however, it is important that government provides certainty over the pipeline for large public sector and infrastructure projects that will help sustain activity.”

Key survey findings include:

• A balance of 45% of heavy side firms and 38% of light side firms reported that construction product sales rose in the first quarter of 2017 compared with the fourth quarter of 2016
• On an annual basis, sales rose for 65% of heavy side firms and 38% of firms on the light side, on balance
• On balance, 68% of heavy side manufacturers anticipated a rise in sales in Q2, improving from a balance of 6% in 2016 Q4
• On the light side, 47% of firms expected an increase in product sales in the next quarter, compared to a balance of 29% in 2016 Q4
• Annual cost increases were reported by 73% of heavy side manufacturers and 80% of those on the light side
• Raw materials costs rose according to 93% of both heavy side and light side manufacturers
• 85% of heavy side manufacturers and all light side manufacturers anticipate a rise in costs over the next year

Take a look at the latest Construction Sales Job>>>

Construction Update: Modest rise in construction output, but cost pressures remain at an eight and a half year high

UK construction companies recorded a sustained expansion of overall business activity in February, with civil engineering replacing house building as the main growth driver. Residential activity increased at the slowest pace for six months, while commercial building declined for the first time since October 2016.

The latest Markit/CIPS UK Construction Purchasing Managers’ Index® survey revealed a further solid expansion of employment numbers, despite a slowdown in new business growth to its weakest for four months. Meanwhile, intense cost inflation persisted in February, which was overwhelmingly linked to higher prices for imported materials.

Key findings:

• Solid upturn in civil engineering activity underpins growth in February
• House building activity expands at slowest pace for six months
• Input price inflation little-changed from January’s peak

At 52.5 in February, up slightly from 52.2 in January, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI® ) registered above the neutral 50.0 threshold for the sixth consecutive month. However, the rate of output growth remained weaker than its post referendum peak (54.2 in December 2016) and subdued in comparison to the trends seen over the past three-and-a-half years.

Survey respondents noted that the resilient economic backdrop and a stabilisation in client confidence since the EU referendum continued to help drive construction growth in February. However, there were also reports that demand growth had softened so far in 2017. Reflecting this, incoming new work increased only marginally and at the slowest pace since last October. Some construction companies noted that sharply rising input costs had an adverse impact on decision-making and contributed to delays in contract completions.

February data indicated that construction companies remain upbeat about their growth prospects for the next 12 months, with almost half (48%) forecasting a rise in business activity and only 13% expecting a decline. The degree of positive sentiment was stronger than seen on average in the second half of Page 2 of 4 © IHS Markit 2017 2016, but weaker than January’s 13-month peak. Strong demand for house building projects was cited as a key factor likely to boost construction output.

Robust business confidence contributed to sustained staff hiring across the construction sector in February. Sub-contractor demand also picked up during the latest survey period, which contributed the sharpest drop in sub-contractor availability since January 2016.

Search the latest construction sales jobs>>

Comments
Tim Moore, Senior Economist at IHS Markit and author of the Markit/CIPS Construction PMI®, said: “February’s survey data highlights that the UK construction sector has rebounded from its postreferendum soft patch but remains on a relatively slow growth trajectory. Weaker momentum in the house building sector was a key factor weighing on construction growth, alongside a renewed fall in work commercial projects.

“There was little sign that the UK storms had a material impact on construction growth in February, although some firms noted that longer delivery times for roof tiles had added to supply chain issues. Instead, survey respondents mainly cited an underlying slowdown in sales growth, with the latest rise in new work the weakest for four months. In some cases, construction companies reported that sharply rising input prices had a disruptive impact on contract negotiations.

“February data revealed that input cost inflation remained at levels last seen in the summer of 2008. Suppliers’ efforts to pass on rising energy costs and global commodity prices have been amplified by the weak sterling exchange rate.”

Input buying increased again in February, although the rate of expansion was only marginal. Greater pressure on supplier capacity led to the sharpest deterioration in vendor performance since June 2015.

Construction companies also reported the second-fastest rise in input costs since August 2008. Survey respondents noted higher prices for a range of materials, driven by the weak sterling exchange rate against the U.S. dollar and euro.

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, said: “Suppliers were challenged this month as they groaned under the weight of higher demand and some material shortages, with the sharpest drop in performance since June 2015. This impacted on the sector’s overall pace of activity, as delivery times lengthened for bricks, blocks and roofing tiles.

“Housing was singled out as a drag with its weakest performance for six months. As a previous driver of growth, there will be concerns about this softening of house building activity. The drop in sub-contractor availability was the largest seen since January 2016, against a backdrop of rising employment numbers across the construction sector, which will add to worries around labour market capacity as we move along the path to Brexit.

“But overall, the sector’s optimism was still high as workloads remained strong, propped up by the prospect of new projects and repeat business. Though the level of new orders was modest, it is the relentless and brutal rise in prices for construction materials, combined with the impact of the weaker pound, that could block the sector’s progress in the coming months.” 


Photo: From Shutterstock

Construction activity reaches eight-month high as delayed projects resume after Brexit vote

November data indicates that the UK construction sector continued to rebound from a weak Q3 2016 as business activity and incoming new work increased at the strongest pace for eight months. Although both rates of expansion remained much softer than the peaks achieved at the start of 2014. Greater workloads underpinned a further solid rise in employment levels and input buying among construction firms. However, average cost burdens rose sharply, with the rate of inflation the steepest since April 2011.

The seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) picked up slightly to 52.8 in November,from 52.6 in October, thereby signalling an expansion of total business activity for the third month running. Reports from survey respondents cited improved order books, alongside resilient client confidence and strong demand for residential projects. There were again reports that heightened economic uncertainty was a key factor weighing on output growth across the construction sector.

Housebuilding activity remained the best performing category of construction output duringNovember, despite the pace of expansion slipping to a three-month low. Construction firms meanwhile reported a marginal rebound in commercial activity, which ended a five-month period of decline. Civil engineering work remained the weakest area of activity.

Increased volumes of construction output were underpinned by a solid upturn in new work during November. The latest rise in incoming new business was the strongest since March and contrasted with a sustained decline in sales through the summer. Some construction firms noted that their workloads had been boosted by a resumption of projects that were delayed after the Brexit vote. However, there were also reports that the stronger inflation backdrop had led to intense competitive pressures and squeezed margins. 

UK construction companies reported a steep and accelerated rise in their cost burdens in November, with the rate of inflation the fastest for just over five-and-a-half years. This was overwhelmingly linked to supplier price hikes in response to exchange rate depreciation.Purchasing activity meanwhile increased at the fastest pace since the start of 2016.Stronger demand for inputs and low stocks among vendors resulted in the sharpest deterioration in supplier performance since June.

Job creation was maintained across the construction sector in November, while the latest survey also highlighted the fastest rise in subcontractor usage so far in 2016. A number of firms linked additional staff recruitment to robust confidence regarding the near-term demand outlook. That said, business confidence was still softer than seen during the first half of the year, with construction companies generally noting that Brexit-related uncertainty had the potential to weigh on business activity during 2017. 

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply,said: “The sector was on a firmer footing this month, as a slight uptick in overall activity and the strongest level of new business growth since March, resulted in more stability after a summer of uncertainty at the time of the EU vote.

“Purchasing activity grew at its fastest pace since the beginning of the year as stronger workflows and tenders materialising into actual projects prompted increased levels of stock building. This resulted in a sluggish response from suppliers, with the fastest lengthening of delivery times since June, as pressure on capacity and low stocks impacted on demand.

“Once again residential activity led the way, though at softer rates than those seen in October and at a more diminished rate than the survey’s long-range norm. Though this positive growth will provide some relief for the economy, continuing cost pressures will be a worry for the sector in the coming months. The impact of the weaker pound was widely felt in November, with cost inflation the strongest since early-2011. Higher prices were reported for a number of materials including bricks, blocks and slate, as businesses struggled with managing costs.Yet, in spite of this grip on precious margins, head counts were increased and demand for subcontractors was also sustained.

“Reports of lingering uncertainty around the progress of Brexit negotiations had business optimism divided, where only 45% of respondents expected a rise inactivity next year – one of the lowest since the middle of 2013. And, as commentators warn about more inflationary impacts next year, the sector will be concerned that decisions from policymakers must ensure these effects are minimalised so that growth is maintained."

Construction sector returns to growth in September

Happy days as September data highlighted an upturn in business activity across the UK construction sector for the first time since May. 

This has been primarily driven by a recovery in residential building. New orders also rebounded during September, which ended a four-month period of sustained decline.

Lets hope this good news is set to continue over the coming months.

Highlights

• Business activity rises for the first time since May
• Solid upturn in housing activity offsets decline in commercial work
• Fastest increase in new orders for six months

Survey respondents cited improving confidence among clients and a reduced drag on demand from Brexit-related uncertainty. Reflecting this,construction firms indicated a further recovery in their business expectations for the next 12 months, with optimism the strongest since May. Just under half of the survey panel (45%) forecast a rise in output over the year ahead, while only 9% anticipate a reduction. However, the degree of confidence remained softer than that seen at the start of 2016.

Search for a sales jobs in the construction industry >>

Adjusted for seasonal influences, the Markit/CIPSUK Construction Purchasing Managers’ Index® (PMI®) registered 52.3 in September, up from 49.2in August and above the 50.0 no-change value for the first time in four months. 

The latest reading was well above July’s seven-year low and indicated the fastest rise in construction output since March. The pace of expansion was nonetheless still softer than the long-run survey average (54.6).A solid rebound in residential activity was the key factor boosting overall construction output during September. Moreover, the latest increase in housing activity was the strongest recorded sinceJanuary. A number of firms cited resilient demand for residential building work and generally improving market conditions.

Construction companies pointed to a renewed rise in civil engineering activity, with the pace of expansion the fastest since March. Commercial construction activity decreased for the fourth month running, which is the longest period of sustained decline since early-2013. However, the latest fall was only modest and the slowest recorded since the downturn began in June.

Higher levels of overall construction activity were supported by a rise in new work for the first time since April. Anecdotal evidence suggested that signs of improving domestic economic conditions,and an upturn in housing-related demand in particular, had contributed to greater volumes of incoming new work in September. This in turn led to a further moderate rise in employment levels across the construction sector, although subcontractor usage continued to fall at one of the fastest rates since late 2013.

Mirroring the positive trends seen for business activity and new work, latest survey data highlighted a return to rising input buying across the construction sector. Meanwhile, construction companies indicated that supply chain pressures eased in September, with the latest deterioration in vendor performance the least marked seen for almost six years.There were again widespread reports that exchange rate depreciation had pushed up the cost of construction materials during September. A number of survey respondents noted that domestic suppliers had sought to pass on higher imported raw material costs. Although easing since August, the rate of input price inflation was close to the highest for two years.

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said: “The residential sector was the winner this month, as consumer confidence made a modest recovery, post the EU referendum.

“Overall, the fastest rise in new orders for construction projects since April ended a four month decline, and purchasing activity was at its highest since March. But, though there were modest rises in staffing levels, these were at one of the weakest rates in the last three years.

“Supplier delivery times recovered at a moderate rate, as higher stocks of building materials were reported and business optimism improved, ending a 39-month low. But, the sector still faces challenges with continuing pressures on input prices resulting from the weaker pound and the lingering uncertainty of the Brexit process and how it will impact on future business.”