The total value of construction contracts increased in February but the number of projects went down. Michael Dall discusses the highlights of Barbour ABI’s monthly Economic & Construction Market Review
The latest revised GDP figures were released in the last month and show the UK economy had grown by 0.7% in the final quarter of 2016, revised up 0.1 percentage points from the preliminary estimate. Upward revisions (due to later data received) within the manufacturing industries is the main reason. Growth in 2016 was 1.8% higher than that in 2015. This has been revised down by 0.2 percentage points from the preliminary estimate. Looking over the longer term the yearly figure of 1.8% GDP growth is significantly below the figure of 3.1% recorded in 2014 and is also below the 2007 pre-recession growth rate of 2.6%.
GDP growth in Q4 of 2016 saw a continuation of strong consumer spending, in line with the Retail Sales Index for Q4, which grew by 1.2%, and strong growth in the output of the services sector, with a notable contribution in consumer-focused industries. In Q4 2016, there has been a slowdown within business investment which fell by 1%, driven by subdued growth of the “information and communications technology equipment and other machinery and equipment” assets.
Putting UK economic growth in the context of the other G7 economies during Q4 2016, the UK experienced the strongest rate of growth among European groupings and G7 countries. In Q4 2016, the UK experienced 0.2 percentage points higher growth than the USA, which experienced a slowdown in growth from 0.9% in Q3 (July to September) 2016 to 0.5% in Q4 2016.
Other news on the UK economy includes:
The value of construction contracts increased in February but the number of projects saw a significant decline. The latest figures from the Office for National Statistics (ONS) show that in January 2017, construction output fell by 0.4% compared with December 2016. However, output grew on a three-month-on-three-month basis by 1.8%.
The value of construction contracts increased in February but the number of projects saw a significant decline
Overall annual construction output growth has increased for 2016, to 2.4% from 1.5%, due to upward revisions for all four quarters, including a revision in Q4 (October to December) 2016, from 0.2% to 1%. New orders fell by 2.8% in Q4 of 2016, driven mainly by falls in private industrial and private commercial work. Despite new orders falling in Q4 of 2016, the annual volume of new orders is now at its highest level since 2008. The CPA/Barbour ABI Index, which measures the level of contracts awarded using January 2010 as its base month, recorded a reading of 141 for February, rising by 4% when compared with January (see Contracts awarded graph). After falls in the Q2 of 2016, contract awards have risen in the first two months of 2017, with private housing, public health, offices and leisure all increasing in February. London prime housing market new starts and prices are declining. UK house prices rose 4.5% in the year to February according to Nationwide.
Other news this month in construction:
According to Barbour ABI data on all contract activity, there was an increase in construction activity levels in February with the value of new contracts awarded at £6.4bn, based on a three-month rolling average. This is a 6.8% increase from January and a 15.4% increase on the value recorded in February 2016. However, the number of construction projects within the UK in the three months to February decreased by 19.6% on January and were 9.7% lower than February 2016.
The majority of the contracts awarded in February by value were in the South-east, accounting for 18% of the UK total (see box, Locations of contracts awarded in February). In the South-east, the award of the Terminal 2 project at the Port of Dover to VolkerStevin, at a value of £400m, was the largest project in February by construction value. Terminal 2 will consist of four large ferry berths, pier structures, marina, reclamation and infrastructure works. London had the joint second highest portion of contract activity by value in February, accounting for 15% of the value awarded. The largest contract was for the Angel House, Marsh Wall redevelopment in Poplar. This scheme will construct 336 flats in a 48 storey tower at a value of £150m and was awarded to Balfour Beatty. East of England was also in second place, with 15% of contract value awarded in February. The largest project awarded was the 45MW integrated waste management facility at Rivenhall Airfield at a value of £679m, awarded to Hitachi Zosen Inova.
Infrastructure had the highest proportion of contracts awarded by value in February with 37% of the total value of projects awarded. Alongside the Rivenhall Airfield development and the Port of Dover scheme, projects such as the Trafford Park Metrolink extension, valued at £350m, and installation of a new cable link in the Channel Tunnel, valued at £185m were two of the larger projects awarded. After the infrastructure sector, the next largest was residential, which accounted for a much smaller 23% of contract value.
A major contract for a resort in Chesterfield greatly boosted the contract values for the sector on the month. Contract award levels in the hotel, leisure and sport sector were £736m in February, based on a three month rolling average. This was 16.9% higher than January and more than double the value of February 2016, up 105.3%. In the three months to February the value of contracts was £1.7bn, which was 12.1% higher than the previous three months. This was also an increase of 29.4% compared with the same period in 2016 indicating longer term growth in the market.
East Midlands had the highest share of the hotel, leisure and sport sector contracts, accounting for 58% of value awarded, an increase from the 2.4% recorded in February 2016. The contract to develop the Peak Resort in Chesterfield to provide a golf course, eco dome, hotel, associated leisure facilities and 250 holiday lodges valued at £400m is the largest contract let in the region, accounting for its strong performance in February. This contract was responsible for the region’s performance in the month with no other contract valued at greater than £1m.
Given the high value of the Peak Resort contract the hotels/motels category had the highest proportion of project type by value in February, accounting for 71% of the value awarded. This is higher than the 62% recorded by the category in February 2016.