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Economic ContextMajor announcements and developments in the UK economy this month.
The Construction SectorThe main economic headlines in the construction industry this month.
Sectors in DetailA closer look at changes in the major sectors within the industry this month.
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MARCH 2016
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Michael DallMichael is Barbour ABI’s Lead Economist specialising in
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About Us
2
Early signs suggest that the UK economic growth has been subdued with less buoyant conditions across all sectors.
Sentiment surveys indicate the UK economy has had a slower start
to 2016 with Markit’s all sector PMI survey showing a slowdown in
activity in January and February, and predicting slowing growth in
the fi rst quarter (see Fig. 1.1).
All sectors in the PMI index have showed signs of slowing hence
the more cautious view of economic performance in 2016. The
Construction PMI recorded a reading of 54.2 in February, a
decrease from 55.0 in January but still well above the 50.0 mark
which indicates expansion (see Fig. 1.2).
The latest infl ation fi gures show a slight increase but the level is
still well below the target of 2%. CPI increased to 0.3% in January
compared to the same month in 2015, the third consecutive month
that this occurred (see Fig. 1.3).
The labour market continued its strong performance with the
latest unemployment fi gures showing that the current claimant
count rate remained at 5.1% at the start of 2016 (see Fig. 1.4).
This demonstrates the continual improvement in labour market
conditions in recent months and this looks set to continue.
Other news this month on the UK economy includes:
� The pound fell to a seven year low against the dollar amid
concern with the prospect of European Union exit and the
current account defi cit
� The Bank of England showed that unsecured lending to households
grew 9.1% in January, the highest level for over 10 years
� A survey by KPMG showed that Britain was second in the global
most competitive tax authorities, second only to Ireland
ECONOMIC CONTEXT
SOFTER SIGNALS FROM SENTIMENT SURVEYS FOR THE UK ECONOMY
2014
Olympics
2015 20162010 2011 2012 2013200920082007
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
62
58
54
50
46
42
38
34
UK
GDP
, con
stan
t pric
es q
/q %
cha
nge
All Sector PMI (O
utput Index)
Fig. 1.1 UK GDP & PMI Source: ONS/Markit/CIPS
2014 2015 20162010 2011 2012 201320092008
65
60
55
50
45
40
35
30
25
PMI O
utpu
t/Act
ivity
Inde
x (5
0 =
no c
hang
e)
Services
Manufacturing
Construction
Fig. 1.2 UK PMI Output/Activity Index Source: Markit/CIPS
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
May12
May11
Nov11
Nov10
Nov12
May13
Nov13
May14
May15
Nov14
Nov15
Une
mpl
oym
ent R
ate
(%) –
age
d 16
& o
ver
(sea
sona
lly a
djus
ted)
3 month period (starting month shown)
Nov 11 = 8.4%
Fig. 1.4 Unemployment Rate Source: ONS
-1
0
1
2
3
4
5
6
2009 2010 2011 2012 2013 2014 2015
J A J O J A J O J A J O J A J O J A J O J A J O J A J O J
Month
CPI
(%)
Fig. 1.3 CPI Infl ation Source: ONS
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Economic Context
3
THE CONSTRUCTION SECTOR
CONTRACTS AWARDED GROW BY 4.2% IN FEBRUARYSlight improvement in offi cial fi gures for 2015 showing construction is growing at a steady pace despite monthly fl uctuations.
The latest fi gures from the ONS show that the construction
sector in the UK declined by 0.2% between January 2016 and
December 2015. Comparing January output levels with the same
month in 2015 showed a decrease of 0.8% (see Fig. 2.1). This fall
was unexpected but it should be noted that the monthly fi gures
for construction output are often volatile and the previous three
months data had been signifi cantly revised upwards.
It is clear that the main reason for the fall this month was the
reduction in infrastructure activity which declined by 5.8%
compared to January 2015 and 8.6% compared to December
2015. New Private Housing increased by 4.8% from January 2015
and was up by 0.6% compared to December 2015. Public housing
output declined by 20.2% compared to January 2015 and 10.6%
compared to December 2015 though this is a signifi cantly smaller
sector than private housing. This highlights that the growth patterns
within the industry are still reliant on private housing although the
growth in private commercial, if sustained, is encouraging.
The CPA/Barbour ABI Index which measures the level of contracts
awarded using January 2010 as its base month, recorded a reading
of 126 for February (see Fig. 2.2). This is a slight decrease from
last month but continues to support the view that overall activity
in the industry remains strong. The readings for residential and
commercial fell but industrial factories rebounded.
Construction SectorAccording to Barbour ABI data on all contract activity, February
witnessed an increase in construction levels with the value of new
contracts awarded £5.6 billion, based on a three month rolling
average (see Fig. 2.4). This is a 4.2% increase from January and an
11.6% increase on the value recorded in February 2015. The number
of construction projects within the UK in February increased by
11.6% on January, and were 6.4% higher than February 2015.
Projects by RegionThe majority of the contracts awarded in February by value were
in the East of England region, accounting for 29% of the UK total.
This is followed by London and the North West with 16% and
9% of contract award value respectively (see Fig. 2.3). The main
reason for East of England’s fi gures this month was the £1.8 billion
contract to construct East Anglia One offshore wind farm.
% change
January 2015 –January 2016
December 2015 –January 2016
Total All Work -0.8 -0.2
All New Work -0.4 -0.8
Public Housing -20.2 -10.6
Private Housing 4.8 0.6
Infrastructure -5.8 -8.6
Public (ex Infrastructure) 4.3 1.6
Private Industrial -5.8 0.7
Private Commercial 2.1 4.7
Repair & Maintenance -1.4 0.8
Public Housing -5.5 -1.8
Private Housing 5.4 5.2
Non-Housing -4.6 -1.5
Fig. 2.1 Construction Activity by Sector (chained volume measure) Source: ONS
0
100
200
300
400
500
600
Con
tract
s Aw
arde
d In
dex
(Jan
201
0 =
100)
All New Build
Private Housing
Commercial Offices
Commercial Retail
Industrial Factories
A M J J A S O N D J F M A M J J A S O N D J F
2014 2015 2016
Fig. 2.2 Contracts Awarded Source: CPA/Barbour ABI
Growth in private commercial, if sustained, is encouraging“
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The Construction Sector
654
Continuing recent trends the offshore renewables sector in the UK
appears to be thriving with a number of high value projects in the
pipeline. The largest construction project by value in London was
the Woolwich Estates regeneration project which aims to deliver
1500 homes in the Connaught Estate and has a project value of
£262 million.
Types of ProjectResidential had the highest proportion of contracts awarded by
value in February with 39% of the total. The infrastructure sector
was close behind with 33% of the contract value awarded (see
Fig. 2.5). This is an indication of the continuing strength of the
residential sector within construction, showing that while the top
end of the residential market appears to be cooling, activity in
the new build market remains strong. In addition, the prominence
of the infrastructure sector contracts in February provides
encouragement for longer term growth in the industry, as it is
historically one of the biggest sectors within construction.
5% 7%
29%
16%3%9%
9%
9%
5%3%
5%
East Midlands East of England London
North East North West Scotland
South East South West Wales
West Midlands Yorkshire & Humber
Fig. 2.3 Locations of Contracts Awarded Source: Barbour ABI
9%
3%
5%
9%
3%
7%
5%29%
5%
16%
9%
Fig. 2.5 Type of Projects Source: Barbour ABI
Residential Industrial Commercial & Retail
Hotel, Leisure & Sport Medical & Health
Education Infrastructure
39%
5%8%5%
2%8%
33%
Fig. 2.4 Construction Activity Trends Source: Barbour ABI
0
200
400
600
800
1,000
1,200
1,400
Num
ber of Contracts
Valu
e (£
milli
on)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Month
F M A M J J A S O N D J F M A M J J A S O N D J F
2014 2015 2016
The majority of the contracts awarded in February by value were in the East of England“
THE CONSTRUCTION SECTOR CONTRACTS AWARDED GROW BY 4.2% IN FEBRUARY
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The Construction Sector
5 6
Take a look at these construction projects in focus this month.
Click on one of the projects below to skip to that page.
PROJECTS IN FOCUS THIS MONTH
COMMERCIAL & RETAILOne Capital Square – Offices – Plot 2£30,000,000
A snippet of this month's regional activityTake a look at what regions have had the most activity.
Residential
Infrastructure
Commercial & Retail
Hotel, Leisure & Sport
Industrial
Medical & Health
Education
HOTEL, LEISURE & SPORTUrban Villa Aparthotel£35,000,000
EDUCATIONUniversity of Northampton Waterside Campus – Learning Hub£90,000,000
INDUSTRIALProject Bullseye – Industrial Units£15,000,000
MEDICAL & HEALTHScottish South East Hub – Muirhouse Health & Social Care Centre£35,000,000
INFRASTRUCTUREInce Resource Recovery Park£30,000,000
RESIDENTIALNew Era Square, Sheffield – Phase 1 – Block 1A£35,000,000
THE CONSTRUCTION SECTOR CONTRACTS AWARDED GROW BY 4.2% IN FEBRUARY
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The Construction Sector
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