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Output: false start gives way to promising finish

Dismal weather saw the first months of 2013 continue last year’s poor form, but the industry has since witnessed a dramatic turnaround in the economy and forecasts that bodes well for the year ahead

It has been a year of two distinct halves for construction. What started out as yet another period of struggle has ended with growing confidence that the industry will see recovery bed in next year, led by the housing sector.

After a poor performance in 2012, which saw an 8 per cent drop in total construction output, came extreme winter weather that drifted into March. The effect this had on construction was marked - with a 5.1 per cent output dip for Q1 2013 and forecasts predicting a further year of decline.

Subsequent growth in Q2, caused largely by the launch of Help to Buy accelerating private housing growth, attracted little excitement, as it merely offset the poor start to the year.

Halftime turnaround

However, the second half of 2013 saw a significant change in both sentiment and confidence.

By the end of Q2, private housing activity was at levels not seen since before the recession, while business sentiment and consumer confidence was improving, albeit slowly, after confirmation that the economy was moving back into growth.

“The green shoots are here to stay. Private and regulated spending is increasing now and public sector growth bodes well”

Construction News Barometer respondent

The Construction News Barometer offers evidence of this optimism.

Almost a third of senior figures from the CN100 top contractors surveyed in November said they felt clients were showing much more interest in developing schemes than a year ago. In the previous survey in August, that figure was around one in 10.

One respondent said: “The green shoots are here to stay. Private and regulated spending is increasing now and public sector growth bodes well.”

Approvals rise

Construction intelligence unit Glenigan supports this optimism.

Its detailed planning approval data shows a sharp improvement in the first nine months of 2013 compared with the previous year, leading to a 4 per cent forecast rise in project starts in 2014.

Smaller companies are also positive. The Federation of Master Builders State of Trade Survey shows workloads up for both residential and non-residential construction in Q3 for the first time since the onset of recession.

Similarly, the National Specialist Contractors Council reports a positive balance for new orders among the firms surveyed in its State of Trade research in Q2 and Q3 2013, after a distinct fall at the start of the year.

Strength in numbers

One of the most prominent announcements this year was that the economy did not in fact experience a double-dip recession.

The Office for National Statistics revised the 0.1 per cent decline previously published for Q2 2012, which would have meant two consecutive quarters of contraction (the official definition of a recession), instead reporting flat growth for the period.

“The second half of the year has seen wider growth with infrastructure and commercial work, primarily in London, adding to the housing and industrial recovery”

Noble Francis, Construction Products Association

Since the start of this year, GDP has grown on a quarterly basis, with Q3 estimated to be up 0.8 per cent. The past two quarters have also seen a stronger showing for construction output, with over 1 per cent growth in both cases.

There has been a plethora of forecast upgrades, primarily due to the surge in housing.

The Construction Products Association has revised up its forecasts for the next five years to reflect the increasingly positive sentiment, meaning output in 2013 is now set to fall just 0.5 per cent, compared with a 1.5 per cent decline forecast in the summer.

Flat year?

Commentators have suggested the year could end up flat, though this would require a strong Q4 performance to offset the weak Q1.

“Q1 2013 was extremely challenging,” says Construction Products Association economics director Noble Francis.

“The second quarter saw a rebound, driven by growth in private housing and industrial factories work. The second half of the year has seen wider growth with infrastructure and commercial work, primarily in London, adding to the housing and industrial recovery.”

“Recovery is more likely to be sustained, as this time it is the private sector driving it”

Noble Francis, Construction Products Association

Construction activity is also continuing its upward surge, according to the Chartered Institute of Purchasing & Supply, with its PMI index for November 2013 registering the highest level of activity since August 2007.

Tender price forecasts for 2013 and 2014 have also grown more optimistic. The Construction News tender price consensus of five consultant forecasts plus Building Cost Information Service shows 2.3 per cent growth this year followed by 3.3 per cent in 2014.

London calling

Predictably, the capital has weathered the storm better than other regions. However, Chris Goldthorpe, managing director of Mace’s cost consultancy arm, says: “The whole country is livening up, particularly in the housing market. That is where the drive is.”

Recovery is therefore on the horizon but it comes with a health warning that the industry is coming from a low base, having suffered arguably more than any other during the recession.

Sweett Group senior director Andrew Moore says: “While the economy didn’t suffer a double-dip, construction certainly did. But finally there is the consensus of prospects for more work.”

Dr Francis says: “Housing has been boosted by the economic recovery and government policies. In infrastructure, rail projects are under way and energy work is in the system.

“We also expect an improvement in business investment, which should lead to improvement in offices work and some positive effect on retail.

“Recovery is more likely to be sustained, as this time it is the private sector driving it.”

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