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01 / The State of play

Construction activity continued to contract in January, albeit at a slightly weaker rate; indeed, the activity index edged up to a six-month high of 46. There were varying fortunes for the sectors: the residential activity index was the only one to rise, creeping up two points to 48. In contrast, the civil engineering activity index continued its recent slide, falling six points to a record low of 19. The non-residential activity index also fell by six points, dipping back into negative territory to 46.

New orders remained below normal for the time of year, with the index once again in negative territory at 46. However, this was an increase of three points compared with the previous month and the highest reading for 17 months. The residential new orders index declined three points to 44, but the indices for the other two sectors increased. The non-residential orders index jumped nine points to 54, the highest level since November 2008.

Firms remain pessimistic regarding future employment levels in the industry. The employment prospects index was 37, signalling an expected reduction in staffing levels over the coming three months. However, this was an increase of three points on the previous month’s figure and the highest reading since last October.

The proportion of firms reporting no constraint on activity increased to 18% in January – the highest figure for three months. Bad weather was still a constraining factor for 17% of respondents, and about 18% indicated that finance had an impact. This was the largest proportion since April 2009.

02 / Leadin construction activity indicator

The leading construction activity indicator suggests that activity will continue to decline over the coming three months. The index is expected to rise two points to 48 in February and then remain at that level in March and April.

The leading activity indicator uses a base level of 50 – an value above that indicates an increase in activity, below that a decrease.

03 / Labour costs

More than half of building firms (53%) reported that labour costs had fallen over the year to January. This was broadly in line with the proportion reporting falling labour costs three months ago. About 10% of respondents indicated that annual labour cost inflation was between 0 and 2.5%, whereas the proportion reporting inflation of between 2.6% and 5% was 32% of building firms.

In contrast, no civil engineering firms indicated falling labour costs over the year to January. Half of civil engineering respondents reported annual labour cost inflation of between 0 and 2.5%, and 50% experienced slightly higher inflation of between 2.6% and 5%.

04 / Regional perspective

Experian Business Strategies’ regional composite indicators incorporate current activity levels, the state of order books and the number of tender enquiries received by contractors to provide a measure of the relative strength of each regional industry.

The indicators of five out of the 11 regions increased in January, and the indicator for the West Midlands remained unchanged at 45. The largest rise was in the East Midlands, which was 55, 13 points higher than the previous month. This is the first time the region’s indicator has been above 50 since last August.

The North-west also saw a strong increase in its indicator, which rose by six points, but at 32, it remained by far the lowest of all the regions. The Northern Ireland indicator posted 55 in January, five points above the previous month’s figure and the highest reading since May 2008. The regional indicators also rose in the South-east and East Anglia.

The strongest declines were in Scotland and Yorkshire & Humberside, whose indicators fell by three points to 50 and 41 respectively. Wales declined two points, but its indicator remained the highest of all the regions at 59.

The UK indicator, which includes firms working in more than five regions, rose two points to a 22-month high of 55.