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1. The state of play

Activity in the UK construction industry continued to rise at a slow rate in February, according to Experian Business Strategies’ latest monthly contractor survey. Orders held up well but tenders were subdued, suggesting that industry activity may slow down in the future.

The short-term prospects for employment are weak. Given the prevailing uncertainty, contractors are preferring not to increase their commitments, of which employment is a big one. Some firms, in fact, even expressed an intention to reduce their headcount in the immediate future.

Civil engineering continued to be the most subdued sector in February by quite some margin. Its activity index did increase, but it was from a particularly low level in January and the rise was insufficient to raise the index back into the increasing activity zone. With the civil engineering orders and tender enquiries indices also at relatively low levels, there is unlikely to be any respite soon.

The residential sector was also subdued in February. Indicators suggest that activity stagnated rather than declined. Order books remain healthy for the time of year but new enquiries fell sharply, possibly indicating that more challenging times lie ahead for residential new build.

The non-residential sector was the strongest by far in February. Its activity index fell by a single point to 56, a level that suggests activity rose during the month.

The non-residential orders and tender enquiries indices both remained at a relatively high level.

2. Leading construction activity indicator

See attached graphic

3. Materials costs

For most respondents, annual materials cost inflation was running at between 2.6% and 5% in February. Although this has not changed from three months ago when respondents last reported on their materials costs, the size of the majority has fallen from 44% to 38%. More than half of all building firms suggested material costs were rising at an annual rate of more than 5%. For 27% of respondents, inflation was higher than 7.6%.

For most civil engineering firms, materials costs are now increasing rapidly. In February, 42% of respondents said they were facing annual inflation of more than 7.6%, up significantly on 27% three months ago. A total of 67% of civil engineering respondents said materials costs were rising at more than 5%. Persistently high oil prices are likely to be having an upward effect.

See attached graphic.

4. Regional perspective

Regional results were mixed in February. Some fared well while in others the industry’s momentum faltered. Northern Ireland’s index was by far the strongest. It rose by seven points to 77, its highest since July 2007.

Four other regions recorded an increase in their composite indicators during the month. The East Midlands’ indicator climbed by five points to 66, both Scotland and the North-east recorded four-point increases, taking their indicators to 61 and 60 respectively, and the Yorkshire and Humberside indicator rose by two points, but at 47 it continued to suggest that the region’s industry was rather depressed.

A seven point fall in the North-west’s indicator also lowered it to 46, in the decreasing zone. This suggests that construction work contracted in the region and that the situation is unlikely to improve in the short term. Falls were also seen in Wales, East Anglia, the South-west and the West Midlands.

Only the South-east’s indicator remained unchanged from the previous month.

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.

See attached graphic.