As the CBI forecasts that the base interest rate will rise by a quarter point to 5.5% within three months, and remain there through 2008, there are mixed signals from the housing market. But total construction output – already at a high – is predicted to grow strongly in the coming years, led by school construction and underpinned by transport infrastructure projects for the London Olympics.

UK new construction output in 2006 was up 5% compared with the previous year and was 1% higher in the fourth quarter than in the previous quarter, according to government estimates. The volume of repair and maintenance work fell by 3% in 2006 overall, but was 1% higher in the fourth quarter compared with the third quarter.

The latest purchasing manager survey from the Chartered Institute of Purchasing and Supply also vouches for continued growth in activity. Its headline index came in at 58.9, up from 57.3 in February and its highest level since December 2003. A reading above 50 indicates growth. The index of new orders soared from 56.2 in February to 60.5, the most marked rise since September 2004.

Total new construction orders coming into the pipeline fell in volume by 6% during the three months to January compared with the same period a year earlier. The Department of Trade and Industry estimates that the volume of new orders placed with contractors for private housing rose by 5% compared with the same time in 2006, but orders for private commercial buildings fell by 13% and private industrial orders dropped 17%.

Commercial acceleration

Property company Savills says that commercial development activity accelerated to a three-month high in February, with an upturn in work on both private and public projects. Sharpest growth was in private sector newbuild and refurbishment activity, together with private sector office development.

There is evidence that the onset of spring has put further fizz into the housing market. According to the Bank of England, mortgage lending rose strongly in February, up from £9.5bn in January to a higher than expected £10.2bn, although the number of mortgage approvals was unchanged at 119,000.

A report by Rightmove says that prices asked for property rose by 12.2% annually from mid-February to mid-March. This was up from 11.5% in the previous month’s survey. However, the new figures contrast with results of an earlier survey by the Royal Institution of Chartered Surveyors which showed that higher borrowing costs have begun to have an impact on the market.

Looking ahead, Market and Business Development forecasts that UK construction output will increase in real terms by 15% between 2006-2011, to £120.6bn at 2006 prices. Within the total, private housing output is expected to expand by 39%, and account for 22% of all construction by the end of 2011, compared with a share of 18% in 2006. Public sector housing is predicted to increase by 29%. Private commercial output is expected to rise by 14% during the period and industrial construction is set to rise by 12%.

MBD anticipates that output of the repair and maintenance sector will grow by 7% between 2006-2011, supported by the continued backlog in the public sector, and will equate to 42% of total construction.

Export upturn

On overseas trade, imports of carpentry and joinery products rose by 5% between the third and fourth quarters of 2006, and by 13% during the whole of last year. Export shipments of builders’ carpentry and joinery products by UK makers rose by 6% between the two latest quarters and were 41% higher in 2006 overall than in the previous year.

In the corporate arena the planned merger between George Wimpey and Taylor Woodrow, to create Britain’s biggest housebuilder producing 30,000 houses a year here and in the US, marks a further consolidation in the sector, from about 30 firms to 10 in the past decade. For the merged com-pany it means vastly increased purchasing muscle and hence more competitive times for its suppliers.