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01 The state of play

The industry continued to expand in January according to Experian Business Strategies’ latest contractor survey. Respondents were generally optimistic about the future, but conviction varied greatly between sectors. Overall, responses were more subdued than in December, possibly an early indicator that uncertainty in the wider economy has started to squeeze the brakes on industry growth, as clients wait to see what happens before committing to new projects.

Civil engineering firms gave a particularly downbeat response to January’s survey. The civil engineering activity index dropped to 37, its lowest level in more than a decade, and its employment index fell to 36, also an extremely low level. That said, results from such a qualitative survey need careful interpretation. It is possible that most respondents witnessed only a marginal fall in their activity levels and that such a low index value is overstating the decline. However, given that the sector’s activity index has been subdued for the past few months and strong anecdotal evidence that suggests the pipeline of work is plentiful but slow to yield output (for example, Thameslink and the Victoria station redevelopment), the sector may be experiencing a temporary rough patch.

February proved to be stronger for the non-residential sector but residential activity growth stalled as the housing market slowdown and new-build sales began to take an effect. Non-residential activity continued to grow strongly and forward looking indicators remained positive for both sectors.

02 Leading construction activity indicator

(See file attached)

03 Labour costs

Labour costs rose by between 2.6% and 5% over the past year, according to more than 50% of building and civil engineering respondents. This is broadly similar to the situation three months ago when 59% of residential and non-residential firms and 62% of civil engineers reported annual labour cost inflation within this range.

For a few respondents, inflationary pressures were far greater in January than over the past year. About 19% of civil engineering firms reported significantly high annual labour cost inflation of more than 7.6% in January. The proportion of building firms reporting cost increases of this magnitude was slightly smaller, at 16%.

Only 6% of responses encountered labour cost increases of 2.5% or less. No civil engineering firms said their labour costs rose this slowly over the year.

(See file attached)

04 Regional perspective

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 region.

Northern Ireland’s indicator climbed 18 points to 70, which suggests the construction industry in this area performed very robustly in January. This was by far the strongest performance and, in second place, the East Midlands was some way behind, at 61.

Many regions saw their composite indicators rise in January, some did not change and only one region – Yorkshire and Humberside – recorded a decline.

Its indicator fell by nine points to 45, suggesting its industry may have fallen into recession.

Apart from Northern Ireland and the East Midlands, rises were more moderate, ranging from a single index point to five points.

Generally the southerly regions fared better than their northerly counterparts.

The South-west and South-east rose by five and three points respectively, while the North-west climbed by one point, the West Midlands by two and Wales by three.

Scotland, the North-east and East Anglia’s regional composite indicators were unchanged from December in January.

(See file attached)