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01 The state of play

Adverse weather conditions in July proved disastrous for some, with Met Office data suggesting that England and Wales were faced with more than double their average rainfall during the month. While soggy conditions inevitably hindered construction activity, Experian Business Strategies’ latest survey suggests that overall, contractors coped well and that the majority managed to maintain their activity levels at the very least. That said, the proportion of respondents citing bad weather as a factor constraining activity rose to 14% in July compared to 8% in June and just 2% in May.

The overall activity index, incorporating responses from across the UK and from firms working in all three construction sectors, stood at 60 for the second consecutive month in July. Nationally, forward-looking indicators remained positive, with the orders, tender enquiries and employment indices all increasing. The orders index climbed two points to reach the highest level, 71. The tender enquiries and employment indices both rose six points to 62 and 59 respectively.

On a sector-by-sector basis, residential and non-residential activity was stronger in July, but the civil engineering index suffered a 25 point fall, which took it to 52, its lowest level since November 2005. Forward-looking indicators, however, remained reasonably positive for all three sectors in July. The residential sector’s orders and tender enquiries indices recorded the largest increases, rising by five points and nine points respectively. They also climbed in the non-residential sector, but marginal falls were recorded in civil engineering.

02 Leading construction activity indicator

(See graphic attached)

03 Labour costs

Wage inflation has increased over the past quarter, according to our panel. Three months ago, when contractors last reported their labour costs, 15% of residential and non-residential firms and 33% of civil engineering firms reported that their annual labour costs had risen by between 5.1% and 7.5%.

In July, the percentage of responses falling into this band increased to 17% and 41%, respectively. On a slightly more positive note, the number of residential and non-residential firms encountering rises in excess of 7.6% fell marginally from 15% last quarter to 13% in July.

For the majority of respondents, however, labour cost inflation was considerably lower, at between 2.6% and 5%. This rate of increase was reported by 64% of residential and non-residential firms and by 59% of civil engineering firms.

04 Regional perspective

All but Northern Ireland saw their regional composite indicators increase in July. Regional composite indicators incorporate activity, orders and tender enquiries from the past three months to provide a measure of the relative performance of each region’s construction industry.

For many regions the increases in their composite indicators were modest, by just a point or two.

Scotland and the North-west, however, bucked this trend and their composite indicators both climbed by four points to 66 and 58 respectively.

Critically, the Yorkshire and Humberside index recorded a tentative increase to 50, which suggests activity neither increased nor decreased during the month, quite an improvement from the previous month when activity contracted marginally.

One point increases were seen in the East Midlands, East Anglia, the South-west and Wales. The South-east and the West Midlands’ indices both climbed by two points while the North-east’s indicator rose by a slightly stronger three.

At 80, Northern Ireland’s composite indicator remained in poll position, despite suffering a seven point fall, after its particular strength in June.