The first half of 2018 was split into two contrasting quarters.
We had Carillion’s demise and the ‘Beast from the East’ halting work in Q1, which gave way to a catch-up in Q2 facilitated by warmer weather and longer days.
As a result, these two quarters produced a distorted, v-shaped growth profile – a dip followed by a sharp uptick.
This masks the underlying performance of the construction industry, as it is difficult to ascertain whether the improvement in Q2 represents pure catch-up, or whether it’s a bit of catch-up mixed with a broader increase in activity.
The early indicators for Q3 and Q4 suggest it was more a case of the former: while construction activity is largely holding up, the momentum is fairly weak.
The Construction Product Association’s industry trade surveys for Q2 signalled that firms ranging from product manufacturers to SME builders do expect a rise in activity in the coming months. However, this growth is expected to be confined to only a few sectors, echoing the monthly purchasing managers index from Markit / CIPS.
Residential in particular remains relatively robust, driven as ever by Help to Buy, regional demand and price growth outside of London on the private side, plus work ramping up under the Shared Ownership and Affordable Home Programme on the public side.
“Infrastructure is also giving cause for concern for the rest of 2018 – particularly in terms of the certainty of large projects in the pipeline”
NHBC registrations data – which is taken from right at the beginning of the housebuilding process – showed noticeable strength as we entered Q2, with site preparation and groundworks set to feed through fairly quickly.
Delays take hold
The commercial sector is a less clear-cut case. City centre redevelopment has underpinned activity so far, but surveys show that weakening sentiment and Brexit-related risk aversion have reduced commercial order volumes.
This was reflected in Hammerson putting its £1.4bn extension and refurbishment of Brent Cross shopping centre on hold, with the developer citing “increased risks in the current market environment”.
The impact of these trends on activity is likely to start materialising as early as Q3 and Q4. There is still some hangover from Carillion across the industry, too, with no work on the two PFI hospitals in Liverpool and Sandwell taking place since January.
Although longer-term in nature, infrastructure is also giving cause for concern for the rest of 2018 – particularly in terms of the certainty of large projects in the pipeline.
The recent admission of a delay and budget overrun for Crossrail, followed swiftly by the announcement of a delay to the second phase of HS2, will undoubtedly knock confidence in a sector already reporting a weakness in new orders.
Rebecca Larkin is a senior economist at the Construction Products Association