The latest ONS figures confirmed that growth in construction slowed towards the end of last year
This is consistent with surveys of the UK economy, which have pointed towards a cooling of economic activity in the latter part of 2014. Construction tends to be pro-cyclical, so any changes in the wider economy are usually reflected in the industry, and vice versa. Any fall in growth rates tend to be reported as a return to another economic malaise. However, in reality slowing growth rates are probably to be expected given the rapid return to growth that the economy experienced in 2013.
Even though construction output declined by 2% between October and November, longer-term trends show that output increased by 3.6% between November 2013 and November 2014. Using these figures provides a more optimistic and realistic view of the state of the industry. Residential has been the main driver of construction growth over the past 18 to 24 months and the latest figures show that this has continued with monthly and yearly growth in residential output. As inflation continues to fall, the likelihood of interest rate rises recedes and schemes such as Help to Buy are also likely to continue whichever party governs in May. This means that the conditions that have fostered such rapid growth in the private housing market are set to continue throughout the year. Without wishing to be a hostage to fortune, I would expect to see the same rates of growth in private housing this year.
The question is, will the other major sectors improve to a level to boost the industry in 2015? The jury is still out, in my opinion. Commercial output fell slightly in the latest ONS figures but the pipeline looks stronger for the rest of the year. London is the leading location for these developments but there are large schemes to be built this year in Leeds and Glasgow which should go some way to balancing regional development.
Infrastructure is the real puzzling sector. There are lots of schemes in the pipeline but not as many spades in the ground. It would be brave to suggest a change in 2015.
Michael Dall is an economist at Barbour ABI