Glenigan Index: 2012 Begins with Growth in Construction

Chart 1: Glenigan Index

The Glenigan Index for January increased by 6% on a year ago after a number of new civil engineering and residential projects started on site during the first month of 2012.

While there continued to be a lack of health, education and hotel & leisure work weighed on the level of new projects, improved weather conditions meant that there was growth overall.

Wales and the south of England enjoyed the biggest increases in new work. London also enjoyed a rise in project starts, in particular from the office sector. By contrast, the underlying value of project starts over the three months to January dropped significantly in Scotland and the North East of England. Scotland experienced a dearth of office and private housing projects, in addition to the general lack of publicly funded work. Similarly, the North East of England had a very small value of education and social housing starts.

Looking at the UK as a whole, the provisional figures show that the underlying value of private housing starts has increased by 45% over the three months to January. Improved weather conditions from last year’s severe cold snap means that many more projects have started on site. By contrast, the index measuring social housing work has remained largely flat on a poor January 2011. There will continue to be a shrinking pool of new builds due to the sustained period of cutbacks that the public sector is enduring. This has left the Residential Index for January 28% up on a year ago. Whilst a further retrenchment in social housing construction is forecast for the near future, private housing starts are expected to remain buoyant over the coming months.

The Non-Residential Index for January is 20% down on a year ago as both privately and publicly funded projects were thin on the ground. Office increased slightly over the last three months, though construction was once again focussed in London. Retail saw much larger growth, with the larger projects including town centre redevelopment schemes and supermarket work. Education remains a weak area of the industry, and has suffered another decline in project starts. In addition, the value of health and community & amenity projects has now dropped three months in a row.

The Civil Engineering Index for January was 63% up on a year ago. Both utilities and infrastructure starts increased significantly on last year. The infrastructure sector saw investments in road and rail station projects in London, the South of England and Scotland. In addition, the utilities sector benefitted from a variety of projects: a £90m wind farm and a £50m recycling centre both started construction in Scotland.

Outlook

2012 will see mixed fortunes for different parts of the construction industry and different regions across the UK.

The cuts in government spending will continue to restrict the number of health, education and social housing projects coming through the development pipeline. Less money for new builds could see an increase in refurbishment work this year as local government make do with their existing stock of buildings.

Conversely, the Department for Transport’s budget was saved from the larger scale cuts imposed upon other departments the flow of civil engineering projects is expected to remain steady.

Private sector prospects are more uncertain. Industrial and office building has finally achieved the long predicted growth. Though more growth is predicted, the strength of any sustained recovery depends on economic prospects, both in the UK and abroad.

Retail prospects, buoyed over the last two years by supermarket expansion, will shift as firms increasingly look to refurbish or extend their current stock of stores. The decline in private housing project starts seen over the first half of 2011 seems to have bottomed out. Whilst renewed stabilisation is anticipated over this year, poor household earnings growth and potentially flat house prices will hamper the pace of any rebound in the underlying value of starts.