Infrastructure rally stems April fall

The Glenigan Index for the three months to April fell by 7% compared to April 2012.

• Project starts have now fallen in every month of 2013 but April has shown a marked improvement in a number of sectors; underlying starts in both the civil engineering sectors increased compared to last year and the industrial and office sectors also saw gains in project starts during April.
• Public sector underlying starts were mixed this month, the education sector continued to perform well but the gains in health and other public sector starts seen last month dissipated.

Although there was a marked improvement during April many parts of the UK are still seeing steep declines in the value of underlying project starts. Northern Ireland and Wales saw the steepest declines in underlying starts, both down by 30% in the three months to April. In Northern Ireland private housing starts have all but disappeared and weakness from publicly financed sectors also pushed starts lower. Wales performed very well last year and the decline in starts indicates this performance will not be repeated during 2013.                                                                            

Yorkshire and the Humber was the best performing region, with underlying starts increasing by 15%. Private sector strength drove the gains with strong retail and industrial starts. In addition civils and education starts were also strong over the three months to April.

The recovery in civil engineering starts in the three months April saw gains in both the infrastructure and utilities sectors, up 9% and 17% respectively. Infrastructure gains were focused in London and the South East, with some large road and rail projects starting in April. The weakness in utilities projects seen during the first three months of the year was due to fewer renewable energy projects starting on site, in part due to the bad weather seen in the first quarter of the year. In April renewables projects were strong with a number of small and medium sized wind farms getting underway, while improvements to the national grid also boosted starts in the utilities sector.

 Housing starts were weak once again this month; although the pace of decline in the private housing sector has slowed with starts 7% down on a year ago, compared to an 18% decline in March. We recorded strong activity in the sector last year and the recent slowdown seems to point to house builders easing off of the development pedal. This could be in reaction to recent lending data that shows that levels of mortgage approvals in the first part of the year are failing to surpass levels seen in 2012 despite continued government support for home buyers. 

The industrial sector witnessed a dire performance in the first quarter of the year; underlying starts were 42% lower than the first quarter of 2012. April has however seen a turnaround in the sector’s fortunes with underlying starts 6% up on the three months to April last year. The start of a factory project related to production of wind turbine components helped boost starts for the sector in the North East                                                                                                                                                                       Chart 1: Glenigan Index 

Outlook

While underlying project starts did show improvement in a number of sectors, our latest data show that construction starts have yet to surpass last year’s level for any month so far this year.

 Over the second quarter of the year we do expect to see a continued improvement in performance across a number of sectors. The private housing sector appears well set to return to growth with the value of planning approvals over the first quarter of the year strong. But concerns about mortgage uptake are currently holding back starts in the sector.

The education sector saw starts up again in the three months to April; they increased 15% from 2012 after seeing gains over the first quarter of the year. We expect the positive performance of the sector to continue as more projects related to the first £300m tranche of the Priority Schools Building Programme start on site in the second quarter of the year.

The civil engineering sectors will experience a mixed performance over the coming months; utilities project starts are forecast to drop off again over the second quarter despite the rise in April. Infrastructure starts look set to continue to see gains in starts as road and rail projects starts on site in May and June.