The CPA/Barbour ABI Construction Index was 128 in July, slightly lower (4%) than in June

Noble Francis

However, one of the things we, as economic forecasters, try to impress upon people is that recovery is never a straight line upwards and there will always be a bit of volatility around the upward trend. The 128 figure recorded was still 17% higher than one year earlier, highlighting the growth in construction over the past year. As the index measures contract awards, it also indicates that construction will grow strongly over the next 12-18 months as the UK economy continues to go from strength to strength. I’m still not getting too excited about the construction recovery, though. We’re still coming from a relative low point and the recovery is still highly focused on housebuilding. Furthermore, tender prices may be rising, but margins, outside of housebuilding, are still tight as contractors are facing rising costs on contracts won at relatively low prices last year.

Barometer private housing index

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Private housing sector index

Positive numbers, for now

The CPA/Barbour ABI Private Housing index of contract awards reached 228 in July, 11% higher than in June and 29% higher than one year earlier. Private housebuilding has undergone a renaissance since spring last year and the index indicates further growth in housebuilding over the next 12 months. However, the percentage growth rates are high because we’re coming from historically low levels of housebuilding, which are than half the number of homes Britain needs each year. And, according to our forecasts, housebuilding won’t meet the number of households being created even in 2018, despite growth every year.

Of greater concern will be post-election uncertainty. With the general election in May 2015 comes concern of house price inflation across all the main political parties. Lending constraints have already started with imposition of the Mortgage Market Review in April and, with interest rate rises just around the corner, further lending constraints could harm demand and, consequently, the incentive for major housebuilding to increase supply as a response. Due to the lag between policy and activity on the ground, this impact would likely be felt in 2016.

Noble Francis is economics director at the Construction Products Association