Although some regions’ fortunes are looking up, activity continues to decline and it’s showing no signs of getting better, warns Experian Business Strategies
01 / The state of play
Construction industry conditions remained downbeat in August. The construction activity index fell three points to 37, its lowest reading since June 1991, following a slight pause in the downward trend in July, when the index was unchanged at 40. Despite activity continuing to contract, there were more positive signs from the forward-looking indicators. Although firms reported that order books remained below average for the season, the orders index picked up slightly in August. Enquiries continued to decline, but the index remained unchanged at 42.
The strongest rate of decline in activity was again in the civil engineering sector, although the situation may improve over the coming months. Orders continued to fall, but the orders index shot up 12 points to a five-month high. Despite increasing cost pressures, with more than half of civil engineering firms reporting materials cost inflation of more than 7.6% in August, firms anticipate reducing their tender prices in the coming quarter. The civil engineering tender price index fell below 50 for the first time in 12 years.
The residential construction activity index fell six points to a record low in August, reflecting the tough conditions.
Orders and tender enquiries remain depressed, although the tender enquiries index edged up and the orders index stabilised.
02 / Leading construction activity indicator
According to Experian Business Strategies’ Leading Construction Activity Indicator (left), construction activity is forecast to continue to contract over the next few months. The rate of decline is expected to slow slightly in October, before picking up again in November. The Leading Activity Indicator uses a base level of 50 – above that level shows an increase, below that level a decrease.
03 / Material costs
Rising materials costs remain a major concern for respondents, as lower oil prices are only slowly filtering through to firms. About 51% of building firms reported annual materials cost inflation of more than 7.6% in August, roughly the same proportion as three months ago.
The civil engineering sector saw a similar proportion of firms reporting marked rises in materials costs, with about 50% of respondents experiencing annual materials cost inflation of more than 7.6%. However, this was much lower than the 77% that reported inflation of more than 7.6% three months ago.
04 / Regional perspective
The regional picture was mixed in August, as a few regions saw slight improvements, while others continued to deteriorate. Experian Business Strategies’ regional composite indicators, which incorporate current activity levels, the state of order books and the number of tender enquiries received by contractors to provide a measure of the relative strength of each regional industry, increased in five of the eleven regions.
The North-west was the weakest region, as its indicator edged down to 32.
The indicator in the east Midlands declined for the fifth consecutive month, and saw a sharp fall of five points to 41. Falls were also recorded in the South-west, South-east, East Anglia and Scotland. Despite falling three points, the Scotland indicator recorded 50.
Wales saw the strongest improvement – its indicator rose six points to 55. The North-east also saw an increase, with its indicator up four points at 57.
The West Midlands, Yorkshire and Humberside and Northern Ireland indicators edged up, but remained below the 50 mark, with readings of 43, 33 and 36 respectively.
The UK indicator, comprising of responses from firms operating in more than five regions, edged below 50 for the first time since November 2000.
This an extract from the monthly Focus survey of construction activity undertaken by Experian’s Business Strategies division on behalf of the European Commission as part of its suite of harmonised EU business surveys. The full survey results and further information on Experian Business Strategies’ forecasts and services can be obtained by calling 0870-1968 263 or logging on to www.business-strategies.co.uk
The survey is conducted monthly among 800 firms throughout the UK and the analysis is broken down by size of firm, sector of the industry and region. The results are weighted to reflect the size of respondents. As well as the results published in this extract, all of the monthly topics are available by sector, region and size of firm. In addition, quarterly questions seek information on materials costs, labour costs and work in hand.