January鈥檚 index is up but there are mixed fortunes across sectors

Noble Francis

The UK economic and construction news so far this year has been on the positive side. The Office for National Statistics reported that GDP growth in the final quarter was 0.6%. The Bank of England revised its GDP growth forecast for 2017 up, although possibly by too much given its dependence on consumer spending despite rising costs and slowing real wage growth.

In construction, the CPA/Barbour ABI contract awards index rose by 6% in January and was 5% higher than a year ago. But there were mixed fortunes across sectors. Contract awards rose in private housing, public housing, public health and leisure, indicating increases in activity this year.

New contract awards continued to fall away in sectors such as offices, retail, hotels and factories

However, new contract awards continued to fall away in sectors such as offices, retail, hotels and factories. These areas are dependent on high investment up front for a long-term rate of return and, in turn, upon business activity and consumer spending 鈥� both expected to slow this year due to uncertainty and rising costs.

Private housing sector index: Rising housebuilding rates despite a fall in sales

The CPA/Barbour ABI private housing index for contract awards continued to rise. In January it rose 13% compared with December, and was 12% higher than a year ago. This suggests growth for the sector in 2017, with the CPA forecasting growth of 2% in private housing starts in 2017 and 2018. Generally, we use property transactions as a guide to demand in the sector and private housebuilding tends to be around 10%-12% of property transactions. But the additional stamp duty for second homes and buy-to-lets introduced in April 2016 distorted transactions.

Also, Help to Buy, which applies to purchasers of new build, not just first-time buyers, and accounts for around one-third of housebuilders sales, has also contorted the relationship. So property transactions in the second half of 2016 were 8% lower than a year earlier. Yet, a dearth of properties has kept house prices rising despite falling transactions.

As a consequence, housebuilders are still increasing building rates. The key issue in the near-term is skills availability and a shortage of many construction occupations is still reported to be a significant problem.

Noble Francis is economics director at the Construction Products Association

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