Market review: Slow out of the blocks

Economic context

The latest GDP figures released in the last month showed that the UK economy had grown by 0.3% in the first quarter of 2017. This was below the 0.7% rate of growth experienced in the final quarter of 2016, but was higher than the 0.2% growth experienced in the first quarter of last year. Over the last three years, the growth levels in the first quarter have been significantly below the rates experienced in subsequent quarters. It will be interesting to see if this trend continues in 2017.

The latest figures showed that the dominant service sector grew by 0.3% in the first quarter. This is significantly slower than the average of 0.7% over the past four years. This was due to a slowdown in consumer-focused services such as retail trade, which is consistent with the recent slowdown in retail sales volumes. Comparing growth rates in the consumer-focused services with wider service sector shows that, for the first time since 2015, growth was lower in consumer-focused services.

The rate of inflation increased once again in April to 2.7%, up from 2.3% in March (see Fig. 1.3). Air fare rises due to the timing of Easter and clothing, vehicle excise duty and electricity were the main reasons for the increase.

Other news on the UK economy includes:

• Data from the Society for Motor Manufacturers & Traders showed that new car registrations were down by 20% in April from March
• The latest Inflation Report from the Bank of England concluded that the outlook for growth in the UK was steady and revised its growth figure for 2017, up slightly to 1.9%
• A survey by the British Retail Consortium showed that the value of retail goods sold increased by 6.3% in April 2017, compared to a year earlier
• A survey from the Bank of England showed that investment intentions from British businesses increased in the three months to May.

The number of construction projects within the UK in April increased by 25.7% on March, and wAS 27.3% lower than April 2016

Construction sector

The value and number of construction contracts in April 2017 were significantly lower than April last year. The latest figures from the ONS indicate the construction sector in the UK grew by 0.2% between Q4 2016 and Q1 2017. However, looking at the monthly figures, UK construction output fell 0.7%.

The main reason for the quarterly increase in output is growth in private commercial and private housing repair and maintenance. However, in March, the declines in output were attributed to falls in infrastructure work as well as all types of repair and maintenance. This pattern is indicative of some rebound at the start of 2017 compared to the end of last year, but that momentum faltered in March particularly.

The labour market continues to perform particularly strongly in the UK, with unemployment falling to 4.6% and this rate has not been lower since 1975. This is down from a recent high of 8.4% in 2011 and indicates the scale of the drop in recent years.

There are now 1.54 million unemployed people in the UK, 156,000 fewer than a year earlier. The gender mix of unemployment is 852,000 men and 688,000 women. Of those people who are unemployed, 385,000 are classed as long-term, having been out of work for more than 12 months, which is 82,000 fewer than a year before.

The CPA/Barbour ABI Index, which measures the level of contracts awarded using January 2010 as its base month, recorded a reading of 143 for April. This is an increase from the previous month and continues to support the view that overall activity in the industry remains strong (see Fig. 2.3). The readings for private housing were up over the month, but commercial offices were lower than last month’s level at 115. Commercial retail increased considerably this month and the reading for percentage change industrial factories was significantly higher in April. This indicates that the pipeline of work in the private sector remains strong.

According to Barbour ABI data on all contract activity, April witnessed a sharp decrease in construction levels, with the value of new contracts awarded £5.4bn, based on a three-month rolling average (see Fig. 2.5). This is a 15.9% decrease from March and a 10.7% decrease on the value recorded in April 2016.

The number of construction projects within the UK in April increased by 25.7% on March, and was 27.3% lower than April 2016.

Projects by region

The leading region for contracts awarded in April by value was the North-west, accounting for 17% of the UK total. This is followed by London with 15% of contract award value (see Fig. 2.4).

The main reason for the North-west’s figures this month was the award to develop twin water mains in Cumbria. At a value of £300m, it will deliver 30km of pipelines in the area. London’s performance was helped by the One Crown Place development in Hackney, which is a mixed-use residential and commercial scheme. With two office and retail buildings proposed, as well as 247 residential units and a hotel, the contract has a value of £80m, with Mace acting as the lead contractor.

Types of project

Residential had the highest proportion of contracts awarded by value in April with 40% of the total (see Fig. 2.6). The Wardian development in London was the largest residential contract awarded in April, at an estimated £80m. A 55-storey development in Poplar, the scheme is set to deliver 792 units and is being delivered by Ballymore Properties. Another large residential contract awarded was the Bristol Street scheme in Birmingham, a 772-unit development by Barratt Homes valued at £77.2m.

Construction performance by sector

Spotlight on residential

There were large monthly and yearly falls in the value of residential but this follows strong growth at the start of the year. Activity in the residential sector fell significantly in April, with the total value of projects valued at £1.7bn based on a three-month rolling average. This is a 29.7% decrease compared to March and is 19.7% lower than April 2016. The number of units associated with residential contracts awarded decreased by 4.5% between March and April based on a three-month rolling average, but were 6.8% higher than April 2016. While this was a disappointing month for residential values, it comes after high values of work were recorded at the start of 2017.

The latest house price indices for April from Halifax showed that average house prices are rising at 3.8% annually; no change from March. However, there was a quarterly decline in house prices, which was the first fall since 2012, indicating a softening in house price movement that will likely be reflected in the annual figures in future releases.

Nationwide reported annual house price rises at 2.6% in April, down from 3.5% in March. In further evidence of lessening housing market activity, the British Bankers Association reported a 2.7% decline in mortgage approvals in March, the second consecutive monthly fall.

London is the main location of activity in the residential sector this month, accounting for 16.9% of the value of contracts awarded, a rise from 12% recorded in the same month last year.

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