From public housing to the commercial sector, new work continued to keep people occupied over the past year, driving a 3% rise in construction output. Experian Business Strategies reports

01 Overview

Great Britain’s construction industry continued to expand in the first quarter of 2007, statistics from the Department for Business, Enterprise and Regulatory Reform (formerly the DTI) show.

Total construction output has climbed 3.2% from the first quarter of 2006. This was largely because of the new work sector. Robust activity in the commercial sector helped drive a 6% rise in new work, while on the repair and maintenance (R&M) side, output levels were virtually unchanged from a year ago. However, the R&M sector did perform better than in 2006, when its weakness constrained industry growth overall.

The new work sector also accounted for 55% of total activity in the first quarter of the year. Growth in public housing was strongest in percentage terms but, as it has the lowest sectoral value, the impact of this robust increase was limited overall. The commercial sector rose 14% in the first quarter of 2007. It had an exceptional year in 2006, growing at a rate not achieved since 1999.

R&M continued to suffer from the low level of activity in the public non-residential sector. In the first quarter of 2007, public non-residential R&M output was 13% below the same period the previous year. Aggravating the situation was a 3% fall in housing R&M activity on the private side, possibly owing to the impact of higher debt servicing costs limiting what households have available to spend on non-essential R&M works. On a brighter note, the private non-residential sector bounced back strongly after suffering a hefty fall in 2003.

Worth £33.5bn, in 2000 prices, new work orders climbed by 6% in real terms in 2006, with a particularly high level in the commercial sector. While this growth was significant, it is important to note that the letting of a couple of substantial contracts with a lengthy build period skewed the figures upwards slightly. New work orders continued to climb in the first quarter of 2007 and most significant was the strong recovery in infrastructure orders. A year-on-year increase of nearly 50% raised them back on a par with order levels in 2005. Overall growth in new work orders was only moderate at 2% in the first quarter of 2007, mainly because commercial sector orders returned to a more normal level after their bumper year in 2006.

Orders were still on an upward trend in the first quarter of 2007 after their buoyancy in 2006. As a whole, this suggests there is still a plentiful supply of work about and we expect output to continue to grow in real terms in 2007. The short-term outlook is currently best for the commercial sector and this year should bring a long awaited recovery to the infrastructure sector. Overall we forecast output will rise by a further 1.8% this year to about £82bn, in 2000 prices.

02 New work output

(See graphic right)

03 R&M output

(See graphic right)

04 New work orders

(See graphic right)

05 Regional new work output

2007 got off to a good start in many regions and current priced new work output increased from the first quarter of 2006 in all but KNT and the EM. New work activity was most buoyant in LON, NW, WA and YH, all of which recorded a double-digit percentage increase in output. The overall strength of new work output in most of these regions was the result of robust commercial sector expansion.

06 Regional R&M output

Year-on-year all regions saw an increase in their level of R&M activity in the first quarter of 2007. The NE and SW were particularly strong as work increased in the private non-residential sector and overall current priced output rose by 23% and 14% respectively in these two regions. The value of R&M output was once again highest in the SE, by quite a wide margin.

07 Regional new work orders

Turning to new work orders, while LON had a high value in the first three months of this year, orders in other regions struggled to be on a par with the first quarter of 2006.

EM and SC had particularly weak quarters. Robust output growth in the first quarter of 2007 in Wales coincided with a strong increase in new work orders, suggesting there is further scope for growth in this region.

08 Future trends

The chart (below) shows the forecast to 2009. The 2007 Comprehensive Spending Review is likely to bring cuts to some departments’ investment budgets after 2008. With the public sector taking more of a back seat, commercial activity is likely to be the main engine of growth over the next two years. Not only is the offices sub-sector expected to benefit from an upswing in activity in London, there is also scope for the private sector to take a bigger role in delivering health and education facilities. By 2009 work on Olympic venues is scheduled to be under way.