Mixed figures for UK

23 February 2016

UK construction rose for the 11th consecutive quarter, according to the Construction Product Association’s latest Construction Trade Survey, which said that this growth was reported by firms across all areas of the industry, and was led by new building activity in the private housing, commercial and infrastructure sectors.

However, the latest figures from the UK’s Office for National Statistics (ONS) have found that in the fourth quarter of 2015, output in the UK construction industry was estimated to have decreased by 0.4% compared with the third quarter.

And, civil engineering costs in the UK are forecast to rise by around a quarter in the next five years, and tender prices by around a third, according to the latest report from RICS’ (Royal Institution of Chartered Surveyors’) Building Cost Information Service (BCIS).

This report found that civil engineering costs rose by 1.4% in the third quarter of 2015 compared with the previous quarter, but remained unchanged compared with the same period last year.

At the Construction Products Association, senior economist Rebecca Larkin said of the association’s survey, “It is encouraging that growth continues to be reported across the entire construction supply chain.

“Overall, the near-term outlook appears positive, as firms from construction product manufacturers at the beginning of the supply chain to specialist contractors, SME (small and medium enterprise) builders and civil engineers carrying out work on the ground reported modest increases in enquiries, orders or anticipated sales for the first quarter and the 12 months ahead.”

She added, “Main contractors’ order books suggest some weakness in the first quarter, however.”

She said growth would continue to be led by work in the private housing, industrial and infrastructure sectors, but that there were “clearly areas that are languishing”.

She went on, “Activity and orders were reported to be lower in public housing, which reflects the headwinds facing housing associations and local authorities amid recent policy decisions. Orders were also reported to be lower for repair and maintenance (R&M), both housing and non-housing, in the fourth quarter.

A shortage of skilled on-site labour remained the largest threat to construction activity over the coming months, she added.

The survey found that 23% of main building contractors, on balance, reported that construction output had risen in the fourth quarter of 2015 compared with a year ago.

A balance of 31% of specialist contractors reported a rise in output during the fourth quarter.

It found that 21% of civil engineering firms reported an increase in new orders in the fourth quarter, on balance.

Downward pressure

The ONS said of its figures that downward pressure on the fourth quarter of 2015 had come from repair and maintenance (R&M) which had decreased by 1.4%. This was offset by an increase of 0.2% in all new work.

In December 2015, output in the construction industry was estimated to have increased by 1.5% compared with November 2015, thanks to an increase of 2.6% in all new work, said the ONS, which added that this was offset by repair and maintenance, which decreased by 0.5%.

It said that when comparing the annual 2015 data with 2014, output in the construction industry was estimated to have increased by 3.4%. All new work increased by 6.8% while repair and maintenance decreased by 2.2%.

Civil engineering

The RICS BCIS reported that civil engineering costs were now expected to decrease over the year to the third quarter of 2016. It said this was principally as a result of falling oil prices.

After that, it said that costs were expected to rise quite sharply as oil prices bounced back, albeit from a low base, and as a result, they would increase by around 25% over the next five years.

It said new work infrastructure output was expected to remain virtually flat this year. By 2017, it predicted output would fall, with the cycle of some major projects having passed their peaks, as opposed to a downturn in the market.

Moderate growth was expected to return in 2018, and RICS said it would slow slightly in 2019, before rising quite sharply in 2020 as a result of increased investment in major road schemes and a buildup of HS2 high-speed rail construction – assuming this goes ahead.

Peter Rumble, head of forecasting at RICS’ BCIS division, said, “With civil engineering costs set to fall over the next year, a moderate increase in annual tender prices is expected in the year to the third quarter of 2016.

“Over the next three years, input cost increases are likely to be the key driver of tender prices, but over 2020, the final year of the forecast period, stronger output growth, in addition to upward pressure from input costs, is expected to lead to a greater gap between costs and tender prices.”

He said that despite new infrastructure work output predicted to stall for the duration of 2016, the five-year forecast period remained significantly stronger than pre-2010 levels.

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