Concern for overall construction slowdown in Q1 tempered by rises in commercial and infrastructure sectors

Amid global and sector-specific economic challenges, the construction sector saw growth forecasts downgraded during a subdued first quarter of the year. However, slow but sustainable growth is still expected by industry forecasters throughout 2016.

How did the UK construction industry perform at the start of the year?

The beginning of 2016 saw something of a downbeat assessment of the construction sector with bad weather and continued skills shortages across sectors such as housebuilding being blamed for a fall in output of 0.8% compared with the previous January.

The Construction Products Association was expecting activity to increase “significantly” during 2016, predicting output to increase by 3.6% over the year with growth largest in the private housing, commercial and infrastructure sectors. This growth forecast is likely to be moderated in the upcoming spring forecast, to be published shortly.

February 2016 a positive month

Nevertheless, the infrastructure sector was buoyed following the Chancellor’s 2016 Budget statement in March which contained some strong infrastructure announcements such as prioritisation for Crossrail 2 and other key projects. The sector continued to see healthy growth in February, 27.5% higher than January’s figures and 27.8% higher than February 2015, largely driven by major renewable energy projects.

UK economy growth supports commercial sector

Commercial property agency GVA pointed to the expected overall UK economy growth rate of 2.2% in 2016 as supporting continued growth across the commercial sector. GVA predicts that the service sector and consumer spending will continue to drive the recovery and expects a further strengthening of occupier demand driving rental expectations upwards. New construction orders for commercial property continue to increase, resulting in a sharp rise in tender prices.

A business sentiment survey by Markit saw a slowing of activity in Q1 in its 2016 PMI index, lower than January but still above its 50.0 mark which indicates a trend of expansion still being seen overall.

The survey also recorded construction output hitting a 10 month low in February, led by the weakest rise in housing activity since June 2013. A generally moderate to weak growth picture in several key sectors in particular housing is likely to be hampered by uncertainty around the EU referendum into Q2.

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