Construction activity rose in November, although only one of the three construction sectors monitored – housing – grew, while commercial and infrastructure fell

Construction activity rose in November, according to Markit/CIPS, although they sounded a note of caution, as only one of the three construction sectors monitored – housing – grew, while commercial and infrastructure fell. The rise in housebuilding and the fall in commercial output were unsurprising, as CPA/Barbour ABI contract awards data have been signposting these changes in advance over the past year. Looking forward, the CPA/Barbour ABI indices highlight more of the same for housing and commercial.

Overall, however, the CPA/Barbour ABI indices, which cover more sectors than Markit/CIPS, suggest falling activity in the near term. The CPA/Barbour ABI index for contract awards in November was 6% lower than a year ago. On a yearly basis, the indices for private housing, public education, retail and leisure rose, while health, offices, hotels, factories and warehouses fell, with commercial and industrial investment hit by international investor uncertainty and cost concerns.

Private housing sector index: Growth continues

The chancellor’s Budget in November was focused on housing. However, for all his bluster over building 300,000 homes a year by the mid 2020s, remember that 10 years ago the prime minister set a target of building 240,000 homes per year by 2015. We still haven’t managed that, never mind 300,000. The key government announcement was actually at the party conference in October: an additional £10bn for Help to Buy, so that it continues to 2021.

At the rate it was being taken up, funding would have been used up by 2019. Despite concerns that Help to Buy might have just fuelled house price inflation, it has enabled demand outside the capital so that housebuilders have had the confidence to build more without harming land values and margins.

So, it is unsurprising that the CPA/Barbour ABI private housing index rose by 4% in November compared with October, suggesting a rise in UK housebuilding in the near term. But it was only 1% higher than a year earlier, because growth outside the capital has been offset by falls in London house prices as a result of an oversupply in the exclusive housing market combined with nervous international investors due to Brexit. 

Noble Francis is economics director at the Construction Products Association

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