January was freezing cold but a good month for construction orders, pointing towards a good year ahead for the industry

Noble Francis

The CPA/Barbour ABI index for contract awards was at 133 in January, 17% higher than a year earlier and this indicates that work on the ground will rise in 2015. But before we get too excited, January’s figure was the second month-on-month decline, which suggests that the growth rates are slowing, but it is far too early to get concerned. The monthly declines partly reflect the higher level of construction activity, so we would expect growth rates to slow. They also reflect uncertainty around the most unpredictable general election in recent times. The risk is we end up with an unstable minority government or a three-party coalition, which won’t help government policy or delivery. If a stable government is formed relatively quickly, of whichever colour(s), we should see contract awards pick up again after May.

Barometer January 2015

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Private housing sector index

Balancing act

Private housebuilding has risen significantly over the last year and the prospects going forward are for further growth. The CPA/Barbour ABI private housing index was 242 in January, 3% higher than December and 19% higher than one year earlier. Orders in the sector turn into activity on the ground within six months so this bodes well for the first half of this year and we are forecasting private housing starts to rise 10% this year. The industry is rapidly reaching the 140,000-150,000 units per year that the major housebuilders appear to be happy to build. The importance of this is that, as time goes on, any further growth is going to be more and more reliant upon the small and medium-size builders. Apart from those small builders involved in very high-end residential and the heritage sector, SMEs have been decimated by the last two recessions and for them to make a big comeback will require significant changes, such as improvements in planning and lending, and the availability of skilled on-site trades. However, if these can be overcome, it could make for a more balanced housebuilding sector, not just one dominated by the major housebuilders.

Noble Francis is economics director at the Construction Products Association