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01 The state of play

Overall results from Experian Business Strategies’ November survey suggest a slight weakening of growth in the construction industry with the index on most indicators showing a fall. Essentially, however, the industry continued to expand, if at a slower rate. So far, any problems the industry is encountering as a result of liquidity problems in the credit markets have yet to show in our results. The activity index was unchanged at 58 for the third consecutive month. The orders index fell by six points to 68, but continued to suggest that order levels remained above what is considered the usual level during the month. Enquiries also increased and several respondents expressed their intention to expand headcount over the next quarter.

The risks to the industry are, however, strengthening. The construction industry and wider economy are inextricably linked and so business and consumer uncertainty fuelled by the problems originating from the US sub-prime mortgage market pose a threat.

Across the sectors, civil engineering was particularly weak. The civil engineering activity index fell by three points to 46 and its orders index dropped 22 points to 61. The tender enquiries index fell 25 points to 48 and employment prospects were down three points to 57. The residential and non-residential sectors fared better. Their activity indices continued to show growth, at 53 and 54 respectively. Residential and non-residential order, tender enquiries and employment prospects indices all remained at a relatively high level.

02 Leading construction activity indicator

(See graphic attached)

03 Materials costs

Over the past year there has been considerable upward pressure on the cost of materials from rising oil prices and buoyant global demand.

Although most building and civil engineering firms report annual material cost inflation of between 2.6% and 5%, for a growing number inflation is accelerating. Forty-eight per cent of responding firms said their material costs were rising at more than 5%, with 25% suggesting inflation was higher than 7.6%. Forty per cent of civil engineers reported inflation of more than 5%.

Three months ago, when respondents last reported on annual materials cost inflation, the proportion of building firms encountering increases of more than 7.6% was less than 10%.

For civil engineers the rate of annual materials price inflation has not really changed over the past three months. Civil engineering firms seem to have been hit by higher oil prices and stronger demand on global materials markets sooner than their building counterparts.

04 Regional perspective

Across most regions, activity growth was more subdued in November than in October. Regional composite indicators, which incorporate current activity levels, the state of order books and the number of tender enquiries received by contractors to provide a comparable measure of the relative strength of construction in each UK region, declined across the board during the month.

Despite this, indicators for most regions remained at a relatively high level.

Regional indicators also use a base of 50.

Fifty suggests no change from the previous month, above 50 an increase and below it a decrease.

The Welsh indicator took the largest tumble. Its composite indicator fell by 11 points to 64. However, the fall was from a particularly high level in October and its indicator was just high enough to keep its place in poll position in the regional league table in November.

Indicators for Northern Ireland and the East Midlands also fell relatively sharply. A nine point decline lowered the Northern Ireland indicator to 62 and the East Midlands indicator fell by seven points to 52.

Elsewhere falls were more at five points or less.

Yorkshire and Humberside was the one exception to the declining rule. At 58, its indicator was unchanged from October.