The latest survey of purchasing managers in the construction industry reveals a marked acceleration in activity during October, driven by an upsurge in new orders. The index of activity, published by the Chartered Institute of Purchasing and Supply, hit the 58.1 mark – where a figure above 50.0 represents an increase, and below it a decrease. This compares with 53.6 in September and is the highest reading since March 2004.
The improvement was spread across the industry, but tempered by signs of capacity constraints and lengthening of supplier delivery times. Further, a sharp increase in employment numbers was accompanied by the worst deterioration in the quality of sub-contractor work reported since April.
Separately, official statistics show that in the three months to September there were 40,800 new house starts in England, 9% less than in the comparable period in 2005, and 37,700 completions or 1% less than a year earlier. But over the 12 months to September starts rose by 2% annually and completions were up 6%.
Property company Savills says that commercial development activity in October was the highest for seven months. It was mainly driven by a sharp expansion in the private sector. Growth in public sector work eased, but was supported by the strongest increase in new build activity since data were first collected in March 2003. Optimism about the outlook for the next three months is high overall, but strongest for office construction projects.
The robustness of future demand for housing is indicated by a report from the Royal Institution of Chartered Surveyors which shows that the balance of its members who saw a rise in prices in October increased to 48%, from 45.7% the previous month. Enquiries from new buyers are also up and members are overwhelmingly optimistic that prices will continue to rise into 2007. Ian Perry of the RICS said, “the market is unlikely to feel cold winds from high finance costs until mid-year at the earliest, as economic conditions are favourable”.
Signs of cooling
Nonetheless there are some signs that the market is cooling. According to the Council of Mortgage Lenders the number of first-time mortgages granted in September was 11% down on the previous month and 10% down on September 2005, although total mortgage lending increased in the year to October.
Certainly another rise in borrowing costs early next year would impact on the construction industry in the short- to medium-term, and many analysts do now expect rates to rise. Further, UK house prices have a one-in-three chance of falling by 2010, warns accountancy firm PricewaterhouseCoopers.
The pipeline of new construction orders fell in volume by 10% in the third quarter to September, but rose by 4% on a year earlier. The Department of Trade and Industry estimates that the value of orders placed with contractors dropped by 9% during the quarter but rose by nearly 4% year-on-year. Orders for commercial buildings – the largest sector by value – fell by 17% on the quarter, but were 36% higher annually; total new housing orders eased by 10% and 3% respectively.
PFI construction
Market and Business Development provides a glimpse of the future for PFI-related construction. It forecasts that the value of the sector will decline significantly over the period to 2011, to approximately £1.6bn. PFI contracts peaked in 2002 at £18.5bn. The majority of the spending is projected to be by the Department of Transport.
The latest production figures reveal that output by UK manufacturers of kitchen furniture and units fell by nearly 1% in the third quarter, but was 1% higher than at the same time last year. Makers’ output of builders’ carpentry and joinery fell by 2% in the third quarter and was down by a similar percentage annually.
But export shipments of builders’ carpentry and joinery products by UK makers rose by a massive 42% in the first half of this year and were 48% higher than in the first six months of 2005. In contrast, imports of carpentry and joinery rose by just 9% between the two latest six-month periods, and by 14% compared with the first half of last year.
