How is the construction industry faring as we move into 2020?
Latest construction output figures are more optimistic
We are now firmly into 2020 and another month means another set of construction output figures.
The good news from the most recent IHS Markit/CIPS UK Construction index update, is that there are some green shoots of positivity, with output falling at its slowest rate since May of last year.
Our regular readers will remember that the latter part of 2019 saw major falls in output as a result of ongoing political uncertainty. Anecdotal feedback this month points towards the level of new orders stabilising and a tentatively more positive attitude (the most optimistic since Spring 2018) thanks to a stabilisation of the political environment following last year’s General Election result.
Still below ‘no change’
As we have discussed before, the ‘no change’ output level is 50 so ideally the index would be above this to indicate an expansion across the sector.
The latest figure of at 48.44 remains below that level but shows a notable improvement on last month’s 44.4 and was better than the analysts’ prediction of 46.6.
House building leads the way (again)
It was not a surprise to industry watchers to see that house building was the best performing sector. The new Prime Minister, Boris Johnson, has pledged to cut red tape in a bid to support increased house building across the UK.
This positive news was echoed in the latest analysis of UK house prices from the Halifax which indicated a ‘modest’ increase in prices along with a number of market indicators showing general signs of of improvement.
Increased prices lead to increased demand, and this has a positive impact on the likelihood of house building projects moving ahead.
Commercial & Civil Engineering Activity
Commercial activity had also fallen in this month’s survey but at a lower rate than in previous months.
Civil engineering was once again the worst performing sector. This is hardly a surprise when we consider the long lead times and tendering process required for these major projects.
It is likely that any more positive or optimistic sentiments across the industry will take longer to filter into this sector.
Infrastructure update: HS2 and Heathrow
Companies working in the areas civil engineering and infrastructure are likely to take comfort from the recent confirmation from the government that the HS2 High Speed Rail project will go ahead.
The Prime Minister has agreed to the continuation of the project following the recommendation from the recent Oakervee review which advocated moving ahead. However, he wants better oversight and management from central government to control the project and manage ‘exploding’ costs.
It had been estimated that it would have cost the treasury £12bn to cancel the project as well as leaving a major infrastructure vacuum that would have been difficult to fill.
How about Heathrow?
There is no current update on when the expansion of Heathrow might go ahead. The project was officially approved by MPs in 2018 but the new Prime Minister has always been opposed to it, dating back to the time when he was London mayor. He has recently been quoted as saying that he sees no immediate prospect of the expansion moving ahead.
The project was supposed to be complete by the end of 2026 but has been pushed back, probably to to 2028 or 2029 following the Civil Aviation Authority’s recent refusal to approve Heathrow’s request to vastly increase expenditure on the initiative.
There were concerns that these costs may be passed on to passengers if the project ultimately doesn’t go ahead
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