Kevin Heaton, Director
TENDER PRICE FORECAST
The indecisive outcome of the recent general election has only added to industry
concerns over Brexit and impact the exact terms of the UK’s eventual departure from
the EU may have on the wider economy and the construction industry in particular. This
uncertainty is set against some mixed economic performance indicators.
The latest figures from the Office for National Statistics (ONS) show that construction
output fell 0.60% in the three months to the end of April 2017 compared with the same
period last year. This drop was largely attributable to a 0.9% decline in all new work
and was the first quarter-on-quarter fall in construction output since September 2016.
The ONS also revealed that month-on-month output in April 2017 fell 1.6% compared
with March 2017 driven by falls in all new work and housing as well as falls in repair
and maintenance. The fall in month-on-month output was offset by a substantial rise in
infrastructure which grew by 5.7% compared with March 2017.
All work in April 2017 also dropped by 0.6% compared with April 2016 which was the
first month-on-year decrease since March 2016. The ONS also revised upwards its
Quarter 1 (Jan to Mar) 2017 output figures from 0.2% to 1.1% as a result of late data
being received which also resulted in upward revisions to their January 2017 and March
2017 output figures from -0.1% to +0.3% and -0.7% to +0.7% respectively. According
to ONS the value of New Orders rose by 0.7% in Quarter 1 2017 following two quarters
of decline, the increase being driven by increases in private housing and private
commercial work.
The wider economic picture is also somewhat sluggish with the National Institute of
Economic and Social Research (NEISR) reporting that GDP grew by 0.2% in the three
months ending in May 2017 which is unchanged from the 0.2% growth in the three
months to April 2017. NIESR’s latest forecasts project GDP growth of 1.7% in 2017 and
1.9% in 2018. As ever there are differing opinions on projected GDP growth with HM
Treasury’s Average of New Forecasts predicting slightly lower GDP growth of 1.6% in
2017 and 1.4% in 2018 and OECD forecasting growth of 1.6% in 2017 (revised up from
its previous forecast of 1.2%) before falling back to 1% in 2018 owing to uncertainty
about the outcome of the Brexit negotiations.
In contrast to some rather downcast economic projections from the various sources,
there have been some positive signs with the latest IHS Markit/CIPS Construction PMI
survey for May 2017 showing the fastest upturn in residential work since the end of
2015. The CPA/Barbour ABI lndex (which measures the level of contracts awarded)
also recorded an increase in activity in April 2017 from the previous month which they
contend “continues to support the view that overall activity in the industry remains
strong”.
The regional picture of construction activity within the UK remains mixed especially
where large scale infrastructure projects exert even great pressures on local supply
chains and increase further local skills shortages. Concerns are growing over continued
labour shortages within the industry and the impact forthcoming Brexit negotiations will
have on the availability of industry resources moving forward.
