As growth slows, it is uncertain how long activity on the ground will stay at high levels

Activity on the ground in construction remains high but, given a slowing UK economy, falling real wages and rising construction costs, how much longer can it last? The CPA/Barbour ABI Construction index was at 145 in July, 4% higher than a year ago but 6% lower than in June. Given that it measures new contract awards, this suggests there is still growth in construction activity on the ground across key sectors during the second half of the year. However, this growth is slowing, primarily due to falls in new contracts for commercial retail and industrial factories activity.

But despite the slowdown in the general housing market, private housing continues to increase and July’s CPA/Barbour ABI Private Housing index was 7% higher than a year earlier. And, despite uncertainty and rising costs, new investment in commercial offices appears to have picked up after the sharp fall in offices contract awards during the second half of last year.

Commercial retail sector index: Past its peak

Peak work on shopping centres and the expansion plans of Sainsbury’s, Tesco and Morrisons are long gone. Add the long-term trend towards online spending and it is no surprise the CPA/Barbour ABI Retail index in July was 13% lower than in June and 34% lower than a year ago.

Confidence has been hit by retailers such as Jaeger falling into administration in 2017, and the need for pre-pack administration rescue deals at others like Joy and Jones Bootmaker, while falling real wages and households tightening the purse strings will only make things worse for retail.

However, it’s not all bad news and there are some key growth areas. Aldi and Lidl, the fastest-growing grocery chains in the UK, continue with aggressive expansion. Aldi is expecting to open more than 1,000 stores in the UK by 2022 and Lidl is expecting to invest £1.5bn in opening 50-60 new stores each year between 2017 and 2019 compared with 30 in 2016.

Also, UK investment in trade parks has been surpassing that in shopping centres for the first time. And there are two large projects in London: the £1.4bn redevelopment of the Whitgift Centre in Croydon and Hammerson’s £1.2bn renewal of Brent Cross shopping centre.

Noble Francis is economics director at the Construction Products Association

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