Construction market overview: March 2019

Spring Budget overshadowed by Brexit uncertainty

The chancellor has announced his spring budget for 2019, presenting the latest Office for Budget Responsibility’s forecasts. The OBR’s forecasts have been produced against the backdrop of uncertainty over the next steps in the Brexit process, which has led to a downgrade in growth forecast for business investment over the next five years. In 2019, it is expected that business investment will show a decline of 1.0%, down from a 2.3% rise predicted in October 2018. However, this uncertainty is expected to fade going forward based on the assumption of a smooth post-Brexit transition, resulting in growth projection rising back up to 2.3% in both 2020 and 2021.

The RIBA have responded to the chancellor’s spring statement, by saying “The Chancellor has outlined some modest but welcome changes in today’s Budget. But against the threat of a no deal Brexit they provide little reassurance to a country gripped by uncertainty.”

Political impasse holds back construction growth

The ONS report that the sharp decline in all new work seen in December 2018 has now been reversed, as the all new work month-on-month series increased 2.8% in January 2019. However overall construction output decreased 0.6% in the three-month on three-month in January, driven by a 2.3% fall in repair and maintenance. Despite this, January output continues the trend of steady growth broadly seen since 2017, with output being 1.8% higher than January 2018.

In contrast the IHS Markit/CIPS UK Construction PMI for February 2019 indicates business activity levels fell during February as the index registers 49.5. This reading, down from 50.6 in January ends a ten-month period of sustained expansion, with the index registering below the no-change mark of 50.0 for the first time since the snow disruptions seen in March 2018. This drop was led by reductions in commercial building and civil engineering activity. Survey respondents suggested that Brexit uncertainty has slowed decision-making on commercial projects, leading to subdued client demand so far in 2019. These declines could not be offset, as residential work, the best performing area of construction activity in February, with growth recorded for the thirteenth month running, saw only a modest rate of expansion.

The RIBA Architects’ Future Trends Workload indicates a fall in confidence of large Architects practices, reporting a reading of -3 in January 2019, down from +3 in December 2018. The Brexit process not being very clear and the eventual outcome of Brexit were cited as the most significant sources of caution and apprehension amongst architects.

The latest Quarterly Builders Merchant Building Index shows that, for Q4 2018 merchant sales were 3.1% higher than in Q4 2017, with Q4 having started well, as October 2018 sales were 6.8% up year-on-year. However this was partly due to price increases and a slowdown in sales by volume towards the end of 2018. The Construction Material Price Index for all work from BEIS increased 3.8% in the year to January 2019 and rose 0.2% on a monthly basis. With prices for new housing, repair and maintenance and other new work rising 3.9%, 3.5% and 4.7%, respectively in the year to January.

Latest construction industry forecasts from CITB anticipate that construction vacancies will rise in 2019-2023, with employment expected to reach 2.79m in 2023, 2% lower than the peak seen in 2008. However this assumes the UK and EU can agree a Brexit deal or an extension period, meaning the industry will need to recruit an extra 168,500 workers over next five years.

A promising start to the year for new home registrations

NHBC’s latest new home registration statistics show that 12,677 new homes were registered to be built in the UK during January 2019, an increase of 9% compared to January 2018. 8,931 were registered in the private sector (9,214 in 2018), with 3,746 in the affordable sector (2,469 in 2018). Commenting on these figures NHBC say “It is clear that Brexit uncertainties are affecting the private sector and this will impact the months ahead”.

According to the Bank of England, in January, the number of mortgages approved for house purchase decreased 0.7% on an annual basis, but rose 0.6% when compared to December. The value of these loans was 2.1% higher than a year ago and is an increase of 4.3% month-on-month. The MHCLG report that, a total of 195,219 properties were purchased using a Help to Buy equity loan between the scheme’s introduction on 1st April 2013 and 30th September 2018. The total value of equity loans was £10.66bn, with the value of the properties sold under the scheme totalling £49.89bn. And first-time buyers accounted for 81% of total purchases under the scheme with an average house price being £255,542.

The ONS report average UK house prices rose 2.5% in the year to December 2018, down from 2.7% in the year to November 2018, the lowest annual growth for the UK since July 2013. House prices increased by 0.2% between November and December 2018, compared with an increase of 0.4% during the same period a year earlier.

The Nationwide House Price Index reported that in February 2019 house prices fell 0.1% compared to January, with annual house price growth remaining sluggish in February showing growth of just 0.4% in February. But the Halifax House Price Index reported that in February 2019 house prices increased 5.9% compared to January. And in the three months to February they increased 1.8% compared with the same period a year earlier, up from the annual growth rate of 0.8% recorded in January.

Product manufacturing sector to provide consistent, unambiguous and clear product information

Finally, an action from the Hackitt review was for the product manufacturing sector to provide consistent, unambiguous and clear product information. In response to this, the Construction Products Association has established a Marketing Integrity Group which issued a Call For Evidence seeking responses from across the supply chain, including architects, designers, specifiers, consultants, manufacturers, contractors, builders merchants, maintainers, and indeed anyone who uses product information. This is an important project and has the potential to shape how product information is made available in the future. The consultation is open until 5th April. To learn more and participate visit the CPA website.