The increase in contract awards seen in mid-2013 seems to be slowing but the CPA/Barbour ABI index is still positive across most sectors

Noble Francis

The CPA/Barbour ABI construction index was 112 in April, 3% higher than in March. As the index measures contract awards, it is a forward-looking indicator and implies that 2014 should see further growth in the industry. Not surprisingly, private housing leads the way. However, there was also a rise in the number of contracts within the commercial and industrial sectors. In the commercial sector, offices, retail and hotels contracts saw double-digit rises last month. Given the lead-time between contracts and work on the ground, this will likely result in an upturn in output for these sectors towards the end of this year and particularly in 2015. In the industrial sector, contracts for factory construction rose 12% in April compared to March. The lag between placing orders and work starting in the industrial sector is much shorter than in the commercial sector. As a result, we should see factory construction on the ground from these contracts in the next few months.

 

Private housing sector index

London bubble helps raise house price figures

The media focus on the housing market has primarily been on Help to Buy, house prices and whether there is a housing bubble. That comes as no surprise when the ONS reported that UK house prices were 9.1% higher than a year earlier. If there is a house-price bubble then it is in London, where the ONS reported that house prices rose 17.7% in February compared with a year ago. But house prices in London are heavily influenced by international money. Help to Buy has enabled more demand over the past year but not so much in the capital. Only 7% of Help to Buy sales have been in London. What Help to Buy has achieved over the last 12 months is act as a signal to house builders that they can increase supply without harming land value and margin. Housing starts rose 21% in 2013 and the CPA/Barbour ABI private housing index hit 171 this April, 16% higher than a year earlier, clearly indicating that the growth in house building seen last year should continue throughout this year. We forecast that private housing starts will increase by 18% during 2014 and another 10% in 2015.

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Noble Francis is economics director at the Construction Products Association

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