Faithful+Gould UK Tender Price Index (TPI) Forecast
- The latest forecasts from the Bank of England show GDP growth at 0.8% for Q3 2014, a slender decrease from the confirmed Q2 2014 figure of 0.9%.
- Despite the recovery, annual CPI inflation is expected to have decreased to 1.2% in September 2014, the main contributing factors being downward pressures on oil and grocery prices (ONS).
- Bank of England therefore expected to maintain interest rates at 0.5% until mid-2015 at the earliest.
- “No” vote to Scottish Independence has assuaged short to medium term investor fears for UK Economy.
- Construction output more modest in Q3 2014; quarter-on-quarter increase of 0.9% according to ONS. Overall increase in contract award activity however.
ONS statistics are showing that a cooling down in construction output has occurred in Q3 2014, with an overall quarter-on-quarter increase of 0.9%. The ONS more recently has reported its first negative construction output figures since May 2013. Year-on-year output in August was shown to have contracted by 0.3% when compared to the same time last year.
Despite this slightly less positive data, it should be noted that the level of contracts awarded across the industry in August increased by 16.6% year-on-year and by 4.9% month-on-month, which indicates that the mid to long-term prospects for the construction industry remain strong.
The main driver of the increase in contract awards remains the residential sector, which accounted for 30% of the value of contracts awarded in August and is up 22.8% since the previous year. The commercial and retail sector follows closely, with a 26% share of the awarded contract values and impressive year-on-year increases of 28.1% according to Barbour ABI.
The above therefore explains the ongoing pressures on all-work construction prices, with the BCIS reporting the greatest price increases for new housing and repair and maintenance work. Upward pressure on traditional house building materials and skilled labour such as formworkers and dryliners, which have existed since the first quarter of 2014, will remain for the foreseeable future, with lead-in times for brickwork and blockwork continuing to increase.
London continues to considerably out-perform other parts of the UK in terms of its market share of contract awards, particularly in relation to the residential sector and the commercial & retail sectors. 30% of all newly awarded residential construction contracts in August were located in London and its corresponding share of the commercial & retail sector was a staggering 54%. August's year-on-year growth figures for London also remain more positive than in other regions, with a 37.5% increase in commercial & retail construction activity and 6.3% growth in the residential sector.
Outside of London, other regions do perform well in certain other sectors, however the growth is generally less remarkable. Yorkshire and Humber has obtained strong growth figures in the infrastructure sector with a 21% year-on-year increase in activity, while the North East has also seen notable year-on-year growth in the education sector. In the industrial sector, the most notable growth remains within the South East region.