Index: Construction Growth Slows

• Year on year growth in the underlying value of project starts falls to 2%
• Utilities, civil engineering and residential projects have fuelled growth over quarter 1 2012
• Social housing refurbishment and repair contracts surge

Review

The underlying value of construction projects starting on site in the three months to March increased 2% year on year according to new data from Glenigan.

Private housing starts increased by 14% over the three months to March, though the pace of growth has slowed since January. Most activity has been in London and the South. Social housing starts over the last three months also increased year on year. “Several large repair or refurbishment contracts commenced in the first quarter but this spike will not continue over the next few quarters and we expect the overall level of social housing building to fall this year” commented James Abraham, economist, Glenigan.

Non-Residential construction for the three months to March was 12% down year on year. Abraham commented “Office and industrial building in particular are coming off a low base, responding to a shortage in supply following three years of limited building while the underlying value of health, education and community & amenity have all dropped as public sector cuts continue to bite.”

The underlying value of civil engineering projects starting on site in the three months to March was 28% up on a year ago as a result of renewable energy, water, and rail investment.

Forecast

“The recent pattern of activity is expected to continue this year, with investment in infrastructure and private sector building recovering offset by public funds becoming scarce. Government cuts will continue to restrict funding for new build health, education and social housing projects and we expect refurbishment work to increase this year,” commented Abraham.

Commercial building has finally achieved growth, although a sustained recovery will be dependent upon brighter UK and international economic prospects. The increase in private housing building in the first quarter will slow over the next six months. Whilst Glenigan forecast private housing construction to grow in 2012, the pace of recovery will be limited by poor earnings growth and house prices.