Rising sales of construction products and a steep year-on-year increase in the value of new contracts provide further evidence that 2014 will be a boom year for construction, according to the findings of two statistical updates.
The Construction Products Association’s (CPA) latest State of Trade survey revealed that roughly two-thirds of construction product manufacturing firms experienced a rise in sales in Q4 compared with the previous quarter and the previous year, driven by wider UK economic growth, the private construction sector and exports.
In addition, 73% of “heavy” product manufacturers and 85% of “light” product manufacturers predict a rise in sales over the coming 12 months, and 45% of heavy manufacturers and 58% of light manufacturers expect exports to rise in 2014.
Roughly a quarter of all manufacturers expect to be operating at 90% capacity or above over the coming 12 months. However, this means three-quarters of all product manufacturers will be operating at less than 90% capacity at the end of this year, indicating that product demand will not outstrip supply.
"In previous surveys, private housing was the key driver of domestic demand, however, Q4 has seen construction growth spread to other key sectors such as private commercial, the largest construction sector, and infrastructure."
Dr Noble Francis, CPA
However, energy and transport costs are driving higher unit costs, with over two-thirds of product manufacturers reporting rising costs in Q4 and over 80% expecting costs to rise in 2014.
Dr Noble Francis, economics director at the CPA, said: “In previous surveys, private housing was the key driver of domestic demand, however, Q4 has seen construction growth spread to other key sectors such as private commercial, the largest construction sector, and infrastructure.
“Demand for exports picked up in the second half of 2013 and manufacturers anticipate exports rising further in 2014, primarily due to wider economic recovery in key export markets combined with the relatively low value of sterling. Of concern, however, manufacturers reported margins continue to be severely hindered by cost rises, especially in energy and transport fuel. In addition, manufacturers also reported that labour costs and materials costs rose in the fourth quarter.”
The value of new UK construction projects awarded in December was 67.1% higher than the total awarded in December 2012, according to the latest figures taken from Barbour ABI’s Economic & Construction Market Review.
A total £6bn of new construction contracts were awarded in December 2013, compared to £3.6bn in December 2012. Infrastructure projects accounted for 36% of contracts, reaching £2.2bn, a 10.6% increase on November 2013 and a huge 101.6% year-on-year growth.
The residential construction sector showed sustained growth, boosted by initiatives such as the government’s Help to Buy scheme, with a 88.2% rise in contract values year-on-year for December.
Commenting on the report, Michael Dall, lead economist at Barbour ABI said: “For the most part, the increase in residential activity can be attributed to the government’s Help to Buy scheme, but there are concerns that demand created by such schemes will surpass the rate of house building. This is a topic that will be the source of major debate over the next 12 months in the lead up to the 2015 elections.
“The performance of infrastructure as a sub-sector is also incredibly encouraging. The figures are a reflection of an exciting year of renewed optimism for the construction industry and, as a major contributor to figures for the industry as a whole, the sustained period of strong project values in this sector is good news and a key indicator for future growth.”
Data in the report also identified regional variations in overall construction performance. Wales was the most prominent area in December, accounting for 19% of the UK total, largely attributable to an £800m waste treatment project announced in Clwyd. London accounted for 18% of all contracts awarded, Yorkshire and the Humber accounted for 13% and the South East 12%.
