QUICK LINKS… Major announcements Construction headlines Detailed sector analysis IN THIS JANUARY ISSUE… Value of total contract awards decline by 13.1% in 2018 READ MORE Residential remains the largest sector despite decline and pipeline remains strong READ MORE Industrial sector sees an upward movement with a 21% increase year on year READ MORE Brought to you by… Register to receive your 10 FREE LEADS today Hinderton Point, Lloyd Drive, Cheshire Oaks, Cheshire, CH65 9HQ T: 0151 353 3500 E: [email protected]W: www.barbour-abi.com @BarbourABI JANUARY 2019 Residential Industrial Economic Context About Us Medical & Health The Construction Sector Hotel, Leisure & Sport Commercial & Retail Education Infrastructure 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
Transcript
Q U I C K L I N K S …
Major announcementsConstruction headlinesDetailed sector analysis
I N T H I S J A N U A R Y I S S U E …
Value of total contract awards decline by 13.1% in 2018READ MORE
Residential remains the largest sector despite decline and pipeline remains strongREAD MORE
Industrial sector sees an upward movement with a 21% increase year on yearREAD MORE
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Jane TarverJane is a marketing and research professional who has worked in the B2B sector for over 25 years. She joined AMA Research in 1999 and has extensive research and analysis experience in a number of construction products areas. Jane has also been the lead writer and researcher on AMA’s quarterly construction forecasts bulletin since its inception over a decade ago and has been co-writer of the ECMR since September 2017.
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The UK economy gained slight momentum in Q2 and Q3 following a temporary slow-down in Q1. Although the last Quarter 2 and Quarter 3 have been positive, UK GDP growth remains within the headline estimates as the trend for relatively subdued growth continues. A global perspective indicates that the relatively strong growth in 2017 has shown signs of slowing into H2 2018 with the recent indicators that the Chinese economy in particular is slowing significantly.The latest available data indicates that real GDP
growth for 2017 was revised upwards to 1.8% from the previous estimate of 1.7%. In Q3 UK GDP growth was 0.6% and remained unchanged from original estimates, however comparisons with the same quarter in 2017 show growth of 1.5% for the UK economy (see fig. 1.1). In December, the Bank of England reduced its forecast for growth in Q4 2018 to 0.2% rather than the 0.3% previously estimated indicating that overall UK economic growth for 2018 will be 1.4%. This is below the average rate of 1.9% since 2010 and gives a clear indication that UK
economic growth has continued to slow in 2018.The outlook into Q1 2019 remains uncertain against a background of political turmoil and a slowing of consumer confidence and spending. The UK economy has slowed in H2 2018 but with characteristics of an easing off rather than a sudden stop as the UK begins the final manoeuvrings around the Brexit programme. Growth is forecast to be more subdued into H1 2019 against a background of low inflation, low interest rates but indications of potential slowing of the global
economy, particularly in terms of global trade and investment growth.
Sector comparisonThe sector breakdown indicates that the construction sector saw the largest growth in Q3 at 2.3% followed by both manufacturing and services at 0.4%.The latest data indicates that business investment decreased by 1.1% in Q3 compared with Q2 and is the third consecutive quarter where business
ECONOMIC CONTEX T… Lethargic UK economic per formance continues
investment has fallen (see fig. 1.2). This is unusual in recent years and underlines the uncertainty surrounding key business sectors. The last time business investment levels fell in more than two consecutive quarters was during the economic downturn. Comparisons with Q3 2017 show a decrease of 1.8%. Of the four components of business investment in Q3 only two were positive with buildings & structure contributing 1.1 percentage points and intellectual property contributing 0.7 percentage points. In contrast, transport equipment fell by 1.0 percentage point and ICT and other machinery and equipment was down by 0.9 percentage point. Whilst 2018 has generally been negative for overall business investment no one asset has fallen consistently over the last three quarters. However, the most recent quarters falls in ICT equipment and other machinery have contributed the largest proportion to reduction in business investment.
UnemploymentThe UK labour market continues to be strong with the employment rate in the period August to October at 75.7%, which is an increase of 0.2%
on the May to July quarter and also 1.7% higher than the August to October quarter in 2017 (see fig. 1.3). The number of people in work was estimated at 32.48 million which is an increase of 79,000 on the May to July period. The employment rate for men increased to 80.3% compared to 80.0% in the three months to July, whilst the employment rate for women increased to 71.2% compared with 71.0% for the May to July quarter. Although the unemployment rate remained static at 4.1% compared with the previous three month period, the number of unemployed increased by 20,000 to 1.38 million. However, this is 49,000 fewer than for the August to October quarter in 2017. Comparisons over the last 2 years indicate a steady improvement in the unemployment rate which has reduced by 0.7 percentage points from the August to October 2016 period, whilst employment rates have increased by 1.3 percentage points when compared with August to October period in 2016.
InflationThe inflation rate decreased to 2.1%, as measured by the Consumer Price Index, in December 2018 having pursued a downward trend throughout
2018. Comparisons with December 2017 show inflation at 3.0% indicating that at the close of the year inflation is finally moving within touching distance of the upper limit set by set by the Bank of England (see fig. 1.4). Key factors contributing to the fall include lower fuel prices and lower air fares throughout most of the year. Conversely, upwards pressures were derived from accommodation services, mobile phone charges and increasing food prices.
Country comparisonThe issue of productivity within the workforce remains a concern for the UK economy. The UK has lower rates of productivity per employee than the US, Japan and Canada is at around the same level as France but is higher than both Germany and Italy. The productivity issue has been flagged up by leading industry bodies as a key concern for future industrial investment and growth in a post Brexit economy. Data for the G7 nations between 1995 and 2016 clearly indicates that at constant prices the UK languished at the lower end of the growth curve (see fig. 1.5).
ConclusionIn conclusion the UK’s economic performance has been less positive over the last year with economic growth slowing. The Office for Budget Responsibility (OBR) now predict the GDP growth will be 1.6% in 2019 up from 1.3% indicated in March mainly due to the provisions of the 2018 Budget. Growth rate will then slow to 1.4% in 2020-21 (see fig. 1.6).At the close of 2018, the prospects for the UK economy remain uncertain with the political turmoil surrounding the Brexit issue continuing to rumble on. Whilst the focus of the politicians has been firmly fixed on the withdrawal from the EU, issues concerning economic, industrial and construction growth have been given less focus. The uncertainty regarding the future position of the UK has led to a slowing of business investment and a more cautious approach by consumers to spending which is resulting in not only reduced retail spending but also a slowing within the housing market. Whilst the labour market has remained relatively strong throughout 2018, there are reals concerns about future employment prospects, again limiting the willingness of consumers to spend on non-essentials.
ECONOMIC CONTE X T 1.4
Inflation | Source: ONS
ECONOMIC CONTE X T 1. 5
GDP comparison | Source: ONS
-1
0
1
2
3
4
5
(%)
201620152014201320122011D M J S D M J S D M J S D M J S D M J S D M J S D M J S D
The latest figures from the ONS show that the construction sector in the UK grew by 0.6% between October and November 2018. Comparing output levels with November 2017 showed 3.0% growth (see fig. 2.1).It is clear that the housing sector remains the main component of growth within the industry over the longer term. In particular Private Housing output increased by 9.5% in November from the corresponding month in 2017. Output in the Private
Commercial sector decreased by 1.8% year-on-year but activity in the industrial sector was 2.3% higher. Infrastructure also increased over the year with activity 11.2% higher in November 2018 compared to 2017. However, construction new orders in key commercial sectors such as offices have been less buoyant in 2017 and 2018 indicating the potential for further output decline into the medium-term. Infrastructure will remain strong due to the commencement of HS2 projects in the rail sector
with further investment in electricity distribution and generation also forecast to continue.
Construction SectorAccording to Barbour ABI data on all contract awards, the value of all construction contracts awarded in the UK in 2018 was £61.6 billion and is a decrease of 13.1% on 2017. This decline in 2018 follows 0.6% increase for 2017 with contract awards values reverting to a similar level to 2013. This provides a sharp contrast to recent good growth pattern for contract values between 2012 and 2015 and the levelling out in 2016 and 2017 (see fig. 2.2).The number of contract awards continued on a downward trend in 2018 to 10,352 which is a decline of 8.2% on 2017. Having peaked at 12,440 in 2014 the number of contract awards has reduced by 16.8% to 2018 but with rate of decline increasing significantly 2017-18.
Projects by RegionThe region with the highest share of contract awards in 2018 was London with 19.4% share
which compares to 20% share in 2017 (see fig. 2.3). Residential and commercial & retail contracts accounted for some of the largest contract awards in London in 2018 with the Spire development at West India Quay the largest residential award valued at £800 million. In addition, the £650 million refurbishment of the Houses of Commons Northern Estate was the largest commercial & retail contract award. The South East was the region with the second highest proportion of contract awards by value in 2018 with 12.1% share, which is 0.1% higher than for 2017. The largest contract award for the South East in 2018 was the £250 million Buckholt Lane Business Park in Bexhill on Sea, which was followed by the £158.4 million contract award for the installation of a smart motorway between Junctions 8 and 10 of the M23. The North West accounted for 11.8% share of contract awards in 2018 which is a 0.2% decrease on 2017. The residential sector accounted for the largest contract award in the region in 2018 and was the £159.7 million award for the development of 256 houses, retail units and a neighbourhood centre at Preston Road in Longridge.However, the largest overall contract awards was in the East Midlands for the utilities sector with the £1.8 billion award for the 900MW offshore wind farm at Triton Knoll in the Greater Wash basin. In
Value of contract awards decline by 13.1% in 2018 with numbers also decreasing.
13.9%Decrease in contracts from October 2018
% change
Nov 2017 to Nov 2018 Oct 2018 to Nov 2018
Total All Work 3.0 0.6
All New Work 4.5 0.8
• Public Housing 1.1 2.0
• Private Housing 9.5 3.1
• Infrastructure 11.2 -2.5
• Public (ex Infrastructure) -4.5 -5.8
• Private Industrial 2.3 1.7
• Private Commercial -1.8 2.3
Repairs & Maintenance 0.2 0.2
• Public Housing 4.5 5.8
• Private Housing -8.2 -0.8
• Non-Housing 5.9 -0.5
CONSTRUCTION SECTOR 2.1
Construction activity by sector | Source: ONS13.1% Decrease in contract awards in 2018.
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CONSTRUCTION SECTOR… Construction contract awards decrease in 2018
Scotland, the largest contract award was also for power generation and was the £1.5 billion 372MW Moray Firth Offshore Wind Farm project. The largest contract award in the rail sector was the Highland Mainline Phase 2 project between Inverness and Perth whilst the largest medical and health award was the £163 million Baird Family Hospital and Anchor Centre in Aberdeen.
Types of ProjectThe residential sector had the highest proportion of contract awards by value in 2018 with 37% share,
which is an increase of 2% on 2017 (see fig. 2.4). Leading residential contract awards during the year included the Spire London project at Hertsmere House in West India Quay in London to provide a total of 561 flats and apartments in a single structure over 67 storeys and was valued at £800 million. In the North West, the £120m St John’s Riverside Tower 2 development at the river Irwell canal basin in Manchester will involve the provision of 305 flats and retail units in 2 structures over 36 storeys.Infrastructure was the second largest sector for contract awards in 2018 with 21% share, a decrease of 9% on 2017. The utilities sub-sector took a leading position in 2018 with the top 3 contract awards all related to renewables generation. The largest contract awards was the £1.8 billion Triton Knoll offshore wind farm in the Greater Wash basin and was followed by 2 contract awards for wind farms in the Moray Firth – the £1.5 billion Stevenson
Site and the £500 million Maccoll Site. Transport projects were also at the forefront of infrastructure contract awards with the smart motorway projects between Junctions 16 and 13 of the M1 in Bedfordshire, valued at £349 million and the £250 million Phase 2 of the Highland Main Line rail project between Inverness and Perth.
CONSTRUCTION SECTOR 2. 3
Locations of contracts awardedSource: Barbour ABI
11%
3%
7%
12%
2%
10%
8%8%
7%
19%
12%
East Midlands
East of England
London
North East
North West
Scotland
South East
South West
Wales
West Midlands
Yorkshire & Humber
CONSTRUCTION SECTOR 2.2
Construction activity trends | Source: Barbour ABI
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