Activity on site remains high, but the fall in contract awards after the EU referendum is happening now

The CPA/Barbour ABI contract awards index in September was at 136 – 11% lower than in August and 4% lower than a year ago. Activity on site remains high, but we have been waiting for the fall in contract awards after the EU referendum to feed through for more than a year and this appears to be happening now. The ONS reported that construction output in the three months to August was 0.8% lower than in the previous three months.

Markit/CIPS reported that construction activity dropped in September due to falls in commercial and civil engineering, only partially offset by growth in housing. September’s fall in contract awards is likely to feed through in the next 12-18 months, indicating that falls in construction activity are likely to occur unless offset by continued housebuilding growth and improvement in government’s delivery of its ambitious infrastructure plans, which continue to be dogged by cost overruns and delays.

Private housing sector index: Prices stay flat while output grows

The UK housing market is sluggish overall with flat mortgage approvals, property transactions and house prices – although this hides wide variation across the country. House prices are falling in London and the South-east but are rising in key hotspots such as Manchester.

While the housing market remains subdued, housebuilding continues to grow. Private housing output in August was 2.3% higher than July and 7.5% higher than a year earlier. Markit/CIPS reported that private housing activity continued to rise in September and new contract awards in the first half of 2017 imply growth in housebuilding for the rest of the year.

The CPA/Barbour ABI private housing contract awards index has seen a slight dip in the last three months, but the prime minister’s announcement of a further £10bn for the Help to Buy equity loan scheme in October will boost the fortunes of housebuilders further and see a slight increase in supply.

Despite long-term concerns about Help to Buy’s effect on the housing market, 40% of new residential building is underpinned by the programme. There is clearly dependence on it from housebuilders, so it was vital that is was extended. 

Noble Francis is economics director at the Construction Products Association

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You’ll find interactive, sortable league tables of contract wins on our Barometer site:

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