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01 / The state of play

There has been little respite from gloomy economic news in recent months and December’s survey data was no exception. Construction activity contracted for the 10th consecutive month and the rate of decline edged back down to a record low. Activity fell across all three sectors, with last month’s improvement in the civil engineering sector proving to be short-lived.

The latest evidence suggests that demand conditions remain weak, with 50% of firms reporting insufficient demand as a constraint on activity. Financial restrictions are having an increasingly significant impact on construction firms, with a rising number indicating that tighter financial conditions acted as a constraint on activity during December.

The future, certainly in the short-to medium-term, remains very downbeat. Orders and tender enquiries continued to fall. However, although the orders index edged down further, the tender enquiries index fell at a slightly slower rate.

Construction companies themselves expect the situation to get worse before it improves. This is highlighted by an extremely negative employment outlook for the sector. The employment prospects index fell to a record low of 25 in December, suggesting that companies overwhelmingly anticipate cutting back on staffing levels over the coming quarter.

Tender prices continued to decline, partly as a result of weakening inflation and partly because of more intense competition for any work that remains. The tender prices index declined to a record low, and has now fallen 22 points in just four months.

02 / Leading construction activity indicator

A further decline is expected for construction activity over the coming three months, according to Experian Business Strategies’ Leading Construction Activity Indicator. The index is forecast to rise to 34 in January before edging up further to 35 in February and March.

The Leading Activity Indicator uses a base level of 50. An index above that level indicates an increase in activity, below that level a decrease.

03 / Work in hand

Respondents generally reported a reduction in December in their levels of work in hand from three months ago. Conditions were noticeably tighter for residential firms, with non-residential and civil engineering respondents in the main still reporting a comfortable buffer.

About 50% of civil engineering firms reported order books of between three and six months in the future, with just over 7% having work in hand extending beyond six months.

There was a different situation facing firms in the residential sector. Some 68% of firms reported having less than three months’ advanced work secured, a significant jump from 48% three months ago.

The proportion of non-residential firms reporting work secured for just three months to come was also higher than in the previous quarter.

04 / Regional perspective

The composite indicators in all 11 regions were below 50 in December. The North, the only region in which the index had remained above 50 in the past few months, suffered an 11-point fall to 45. Five other regions – the South-east, the South-west, Wales, Scotland and Northern Ireland – also experienced a fall in their indicators.

The four-point fall in Northern Ireland’s indicator saw it hit a record low of 24, which made it the worst performing region in December. Scotland’s index fell three points to 41, while the Welsh index dropped six points, taking it to a new record low of 34. The South-west fell eight points and the South-east’s indicator edged down one point.

Four regions experienced an increase in their indicators, albeit only marginal. The Yorkshire and Humberside index rose two points to 35, and the East Midlands, East Anglia and North-west indicators edged up by one point.

The UK indicator, which includes those firms operating in more than five regions, fell four points to 44.

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.