New construction contract awards picked up in August, after the dip in July

New construction contract awards picked up in August, after the dip in July. The CPA/Barbour ABI contract awards index in August was 6% higher than in July, returning the index to the levels seen in June. While activity on site remains high, uncertainty abounds about prospects for consumer spending, which drives the UK economy, given that real wages have been falling since April. There are obvious concerns about what this may mean for construction demand once current projects have been finished. A key trend recently sustaining activity has been refurbs, which appear to have been carried out by those with housing wealth, notably older age groups who do not plan to move soon.

Conversely, some contractors have reported that work on existing public housing in the second half of the year could be lower than initially expected, as local authorities and housing associations focus on immediate concerns and have delayed signing new contracts since June.

Private housing sector index: Slow starts

Private housebuilding continues at levels higher than a year ago despite the slowdown in UK economic growth, falling real wages and a subdued general housing market. 

However, housebuilding is clearly slowing. The NHBC reported that housebuilding starts in the last three months were 1.3% higher than a year ago, but the key driver of this recent growth was not the major housebuilders, which dominate the market. Starts for the top 10 housebuilders in the past three months were 4.2% lower than a year ago, while starts for the top 11-50 builders were 25.9% higher than a year ago, and starts by the smaller housebuilders in the past three months were 12.6% lower than a year ago. 

In terms of future prospects, the CPA/Barbour ABI private housing index of contract awards was at 247 in August, still 9% higher than a year ago. However, contract awards dropped significantly in July, by 9% compared with June, and contract awards in August remained 7% lower than in June. All of this suggests that a further slowdown in private housing is likely in the autumn, despite growth from SME housebuilders.

 

Noble Francis is economics director at the Construction Products Association

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