Public sector weakness holds back construction recovery

A drop in public sector activity saw UK construction growth stall in the three months to September, according to new figures released by industry analysts Glenigan.

The Glenigan Index, which covers the value of projects starting on site from July to September this year, remains unchanged compared to the same period in 2012, as falls in government-funded work offset strong civil engineering starts and a rise in private housing.

While the value of private housing projects starting on site was up 7% on last year, non-residential building schemes were 11% lower due to sharp declines in the public sector, combined with fewer commercial starts.

Glenigan data points to a general weakening in publicly funded areas such as health and community and amenity, with social housing recording a 7% drop.

The regional outlook paints a similar picture, with London enjoying the sharpest growth in project starts, increasing by 30% against a year ago, in part due to the rises in private housing, as well as an increase in education projects. 

The East Midlands and the North East have also seen sharp rises in private housing starts.

 In contrast, the West Midlands and Yorkshire and the Humber experienced the sharpest decline; falling by 25% and 22% respectively and reversing growth seen earlier in the year.

Glenigan Index  

The monthly Glenigan Index is based on extensive research of every construction project starting in the UK over the previous three-month period and provides an indicator of developing activity in the industry.

Commenting on the figures, Glenigan Economics Director Allan Wilén said: “The latest data underlines the fragility of the recovery, with falls in government funded sectors and a pause in the flow of private commercial projects offsetting a strengthening in private housing and civil engineering work.

“Nevertheless, we anticipate renewed growth during the final quarter of the 2013 and next year as private sector sentiment improves.” 

He added: “Recent months have seen a pick-up in the wider housing market, with a rise in mortgage approvals and housebuilders reporting increased sales.  

“The market recovery is expected to gather further momentum over the next 18 months, sustaining additional growth in private housing starts.”

According to Allan, the commercial and industrial sectors are also expected to pick up during the latter half of the year.

He said: “The flow industrial and commercial projects have slipped back since the start of the year, in contrast to the strong growth seen during 2012. 

“However there are signs that this period of consolidation is drawing to a close. 

“Industrial project starts during the third quarter were 18% up on a year ago and further growth is anticipated for the coming months, while the flow of office projects is also expected to improve as 2014 approaches.”

Civil engineering remains another bright spot, with a doubling in utilities projects resulting in a 29% year-on-year increase which looks set to continue into next year. 

“Civil engineering starts are forecast to strengthen further during the final quarter of the year and remain firm in 2014, supported by an increase in transport and energy related projects,” Allan said.

He added: “In contrast, largely public funded sectors such as social housing and health remain subdued; a trend that is forecast to persist during 2014.  

“However education is expected to be a bright spot, as projects from the Priority School Building programme help to lift starts and local authorities address the shortfall in primary school places.”

PR contacts:

• Kirsty Maclagan (Marketing and Communications Manager)

T: +44 (0)1202 786 842│E: kirsty.maclagan@glenigan-old.thrv.uk

• Allan Wilen (Economics Director)

T: +44 (0)751 579 4625│E: allan.wilen@glenigan-old.thrv.uk 

Notes to the editor

The Glenigan index of projects starts provides a leading indicator of construction activity in the UK. It is based on data collected about every construction project started on site in the previous three month period. The index covers civil engineering projects over £100,000, office and commercial projects over £250,000 and more than 10 units for residential property. It excludes any project over £100m. A full copy of the Glenigan forecast is available upon request.

About Glenigan – a 4C Service

Glenigan combines comprehensive data gathering and exhaustive research with detailed statistical modelling and expert analysis. We deliver a trusted insight into UK construction trends and activity. Our customers include government agencies, construction companies, suppliers of materials and services to the construction industry. www.glenigan.com 

Table 1: Glenigan Indices (Large* projects up to £100 million)

Note: * >£100k civil projects, >£250k commercial projects, ≥10 units residential
r – Revised, p – Provisional. Percentage change is against the same period of previous year.
Source: Glenigan