February’s index is up, following on from a rise in January, but sector performance varies

Noble Francis

After the falls in contract awards in the second half of 2016, this year has started with rises in both January and February. The CPA/Barbour ABI contract awards index in February was 4% higher than January and 12% higher than a year earlier. Be a little wary of the annual comparison as the first quarter last year was unusually subdued, if you remember. As with the contract awards index in recent months, the overall figure masks a considerable variation across the different construction sectors. Contract awards fell in publicly-funded education, retail, hotels and warehouses. Overall, this was offset by increases in contract awards in both private and public housing, public health, offices and leisure. The rise in contract awards for offices was the first rise since summer 2016 but it is still too early to say if the fall in signing new contracts for office construction in the second half of last year was just a temporary hiatus rather than reflective of a downward trend.

Private housing sector index: Watered down measures

On the positive side, we got the long-awaited and much delayed government housing white paper. On the negative side, it appeared to be heavily watered down. The government appears to be looking at the housing market from a different perspective but it is unlikely to radically change things in the housing market. In the meantime, the housing sector continues as it had been previously. The CPA/Barbour ABI private housing index for contract awards in February was 2% lower than in January but 42% higher than the very subdued February one year ago. In the London prime housing market new starts and prices are declining. However, excluding this small niche, prices and housing starts are both rising. UK house prices rose 4.5% in the year to February, according to Nationwide and while prices are rising builders will build especially as they are being sustained by Help to Buy, which accounts for around 40%-45% of sales. Bovis announced that, given issues it has recently faced, it will focus on quality rather than units but this may be a one-off and you may see other majors competing to get a hold of their land banks in a growing market.

Noble Francis is economics director at the Construction Products Association

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