The CPA/Barbour ABI Construction Index was 129 in August, marginally higher than in July but 21% higher than a year earlier
As 2014 progresses, it is clearer that the recovery in construction is becoming more firmly entrenched. Contractors are starting to feel the benefits of rises in tender prices on contracts signed earlier in the year, although there is still considerable pressure on margins as the costs of labour and materials rise, especially in private housing. However, while the index in previous months had shown growth across all key sectors, August’s data wasn’t as positive all round. Private housing, education, health, warehouses, commercial offices and retail showed double-digit growth compared with a year ago. Conversely, public housing, commercial leisure and industrial factories were considerably lower than a year ago and, given the short time lag between contract awards and activity on the ground, we would expect to see dips in these three sectors towards the end of this year.
Private housing sector index
The rise and rise
Private housing has continued to impress and the CPA/Barbour ABI Private Housing Index indicates that contract awards increased yet again. The index was 231 in August, 1% higher than in July and 31% higher than a year ago. Previous concerns that rising worries about house price inflation, especially in London, had led to the increased imposition of lending constraints through the Mortgage Market Review (MMR) in April and formal macro-prudential policy oversight by the Bank of England in June. Our concern was whether this would, in turn, constrain demand and, consequently, the incentive for major housebuilders to increase supply. However, this has clearly not been the case and the lending constraints appear to be a precautionary measure to ensure that lending doesn’t end up in the same position as 2008 rather than constrain lending now. Despite the two measures, the value of loans for house purchase in July rose by 14.6% month-on-month and 32.6% year-on-year according to the Council of Mortgage Lenders, indicating that housing demand continues to rise and there is every reason to expect rises in private house building throughout the rest of this year.
Noble Francis is economics director at the Construction Products Association