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I N T H I S J U L Y I S S U E …

Value of contracts awarded continued to fall, reaching it’s lowest total for more than 5 yearsREAD MORE

£115 million Luton Airport Light Rail Link tops the projects in JuneREAD MORE

Housebuilding contract value at its lowest point across 2018 so farREAD MORE

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E C O N O M I C C O N T E X T …

SignsofimprovementbutUKeconomy still underwhelms

ThefirsteditionofthemonthlyGDPestimateswerereleasedbytheONSinJuly.Thesefiguresprovidea monthly indicator of how the whole economy is performing in addition to the traditional quarterly report. Increasing the frequency of GDP information will, in theory, allow for a better understanding of how the economy is performing between quarters and add some context to the various sentiment surveysthatarecarriedouteachmonth.ThedatashowedthattheUKeconomygrewby0.2%inthe

threemonthstoMaycomparedtothepreviousthreemonths.ThisfollowedonfromzerogrowthinthethreemonthstoApril.ThislevelofgrowthinthethreemonthstoMaymeantthatconfidencewas high among commentators that quarterly GDPgrowthwouldincreaseto0.4%inQ2(seefig.1.1).ThehotweatherandtheWorldCupinJuneincreasedconfidenceamongeconomiststhattheimprovementinthethreemonthstoMaywould continue.

Sector comparisonThereasonfortheincreaseintherateofgrowthinthethreemonthstoMaywasanaccelerationofactivityintheservicesector.Theservicesectorcontributed 0.34 percentage points to the overall rate of growth with retailing activity, computer programming and legal services all boosting activity (seefig.1.2).Theretailsectorinparticularreceivedaboost with the royal wedding and the warm weather. Given that the warm weather has continued into

Initial GDP data shows activity is set to pick up in the second quarter of 2018.

0.4%increase in GDP growth predicted in Q2

News this monthOthernewsthismonthontheUKeconomyincludes:

The UK government revealed its Brexit white paper which states its negotiating stance with the EU aiming for an “associate agreement” with the EU

A report by the OECD showed that the UK had the weakest wage growth of any of the G7 economies since the fi nancial crisis

Forecasts from the European Commission predicted UK GDP growth of 1.3% this year and remaining weak at 1.2% in 2019

A survey by the Society of Motor Manufacturers and Traders showed that new car sales were 3.5% lower in June than in the same month last year, with sales of diesel cars in particular signifi cantly down. ECONOMIC CONTE X T 1.2

GDP contribution | Source:ONS

Cont

ribut

ion

to g

row

th (%

)

AgricultureConstructionIndex of ProductionIndex of Services-0.1

0.0

0.1

0.2

0.3

0.4

ECONOMIC CONTE X T 1.1

GDP growth | Source:ONS

Cont

ribut

ion

to g

row

th (%

)

Q22016

Q32016

Q42016

Q12017

Q22017

Q32017

Q42017

Q12018

Feb-Apr2018

Mar-May2018

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7


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ECONOMIC CONTEX T… SignsofimprovementbutUKeconomystill underwhelms

June,andtheworldcuphasbeenon,suggeststhatthis growth is likely to continue. Construction was anetdragontheoverallfigure,contributing-0.1percentagepointstooutputgrowth.Theproductionsector also proved a drag on growth in the three monthstoMaycontributing-0.08percentagepointstooverallgrowth.Themainreasonforthiswasadrop in manufacturing due to weaker level of exports which caused a drag on growth of 0.12 percentage points.MiningandquarryingdidincreaseinthethreemonthstoMaybutelectricityandgassupplycontractedby0.5%butthatwaslikelydueagainto the warm weather. However, taken all together thiswasnotenoughtooffsetthelargerdeclinesinmanufacturing during the period.

UnemploymentThelabourmarketisstillprovingtobeparticularlyrobust with the level of unemployment remaining at4.2%inthethreemonthstoApril.Thisisthejoint lowest rate of unemployment since the period

MarchtoMay1975.Formalestheunemploymentratewas4.3%whichisaslightincreasefromthe4.2%intheFebruarytoApril2018period.Therateforfemaleswas4.1%,whichisthejointlowestsincecomparablerecordsbeganin1971(seefig.1.3).Innumbers there are 1.42 million unemployed people inthethreemonthstoMarch,whichis115,000lessthanthesameperiodinthepreviousyear.Thereare767,000 unemployed men, 73,000 fewer than a year earlier and 649,000 unemployed women, 41,000 fewer than the year earlier. In terms of the length of unemploymentforMarchtoMay2018therewere833,000peoplewhohadbeenunemployedforupto six months, 63,000 less than in the same period ayearbefore.Therewere214,000peoplewhohadbeen unemployed for between six months and one year which was 35,000 fewer than the year before. Finally, there were 369,000 people who had been unemployed for over one year, which was 17,000 less than a year earlier.

eased in housing costs with electricity price increases fallingawaycomparedtoMay2017.Thesamewastrueforanumberoffoodstuffsincludingsugar,jam,syrups,chocolate and confectionery.

OutlookTakentogetherthisdatashowsaUKeconomythatis likely to improve its performance in the second quarter. However, there is no notable pickup in overall economic growth compared to 2017. If anything, it remains likely the overall growth rate will continue todeclinein2018sincethefundamentalsremainthesame. While consumer-focussed service industries improvedinQ22018itislikelytobeatemporaryboost due to the royal wedding, the hot weather and the world cup. Brexit remains an immediate and long term risk to economic growth and as negotiations continue more certainty will help businesses with their investment decision process. However, given the lack ofclaritythusfaritisdifficulttoassessitsfullimpactonUKeconomicgrowthinthefuture.

InflationWhile unemployment continues to fall, the level of inflationisbeginningtoincrease.ThelatestfiguresforMay2018showsthattheConsumerPricesIndexincludinghousingcosts(CPIH)ratewas2.3%upfrom2.2%inApril2018.Theratehadfallensharplyinthemonthssincetheautumnof2017(seefig.1.4).HoweverinMaytherewasabroadincreaseinthepricesofgoods and services which impacted the rise in the CPIHrate.ThelargestsinglecontributortothegrowthrateinMaywastransportcostswhichincreasedby4.6%.Thisisacontinuationoftheimpactofrisingoil prices leading to higher petrol prices. During the period petrol prices stood at 125.3 pence per litre, the highest average price recorded in nearly four years. As wellaslargerisesinpetrolpricesthereweresignificantincreasesinseafaresandairfares.ThiswasattributedtothetimingofEasterwhichwasearlyinAprilmeaningthe collection of that information was not processed untilMay.ThereforethetraditionalincreasesinpricesatEasterarerecordedinthisrelease.Pricepressure

ECONOMIC CONTE X T 1.4

Inflation | Source:ONS

-2

-1

0

1

2

3

4

5

6

May2008

May2009

May2010

May2011

May2012

May2014

May2015

May2016

May2017

May2013

May2018

CPIH CPI OOH

%

ECONOMIC CONTE X T 1. 3

Unemployment rate | Source:ONS

4

5

6

7

8

9

Feb2013

Feb2014

Aug2013

May2013

Nov2013

May2014

Nov2014

May2015

Nov2015

May2016

Nov2016

May2017

Nov2017

Aug2014

Feb2015

Aug2015

Aug2016

Feb2017

Aug2017

Feb2016

Feb2018

3 month period (starting month shown)

% o

f eco

nom

ical

ly a

ctiv

e

Women

Men

People


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T H E C O N S T R U C T I O N S E C T O R …

Junecontinuesdownward trend

% change

3 months to May 2018 Apr 2018 – May 2018

Total All Work -1.7 2.9

All New Work -2.5 2.3

• Public Housing 0.1 4.2

• Private Housing -4.3 2.7

• Infrastructure -2.0 2.4

• Public(exInfrastructure) -9.4 3.4

• Private Industrial 7.2 0.2

• Private Commercial -0.2 1.3

Repairs & Maintenance -0.1 4.0

• Public Housing -1.8 0.5

• Private Housing -1.0 7.3

• Non-Housing 1.0 2.6

Total Output New Work Output Repair & Maintenance

Output Growth Output Growth Output Growth

2016 148,692 3.9% 95,821 5.2% 52,871 1.6%

2017 156,281 5.1% 100,982 5.4% 55,299 4.6%

2018 (f) 156,437 0.1% 101,271 0.3% 55,166 -0.2%

2019 (p) 160,650 2.7% 104,705 3.4% 55,945 1.4%

2020 (p) 163,743 1.9% 107,092 2.3% 56,651 1.3%

ThelatestfiguresfromtheONSindicatetheconstructionsectorintheUKdeclinedby1.7%inthethreemonthstoMaycomparedtothepreviousthreemonths, the third period in a row where declines wererecorded.Inthemonthlyfiguresconstructionincreased,withoutputgrowingby2.9%inMay2018comparedtoApril2018(seefig.2.1).In the three month series there were large decreases in newworkacrosstheboard.Newworkdeclinedby2.5%

inthethreemonthstoMaycomparedtothepreviousthreemonths.Ofparticularnotewasa4.3%declineinprivatenewhousing.Thisisthelargestsectorinconstruction and has been the major driver of growth in recent years so the declines are potentially damaging for the entire industry. Public other new work also fell sharplyby9.4%overtheperiod.Theindustrialsectorprovided some good news however with an increase of7.2%withwarehousingconstructioninparticular

supportingthisgrowth.Themonthlyfiguresweremoreencouragingwithanincreaseinoutputof2.9%inMay2018comparedtoApril2018.Withinthistimeframenewprivatehousingincreasedby2.7%whileprivatehousingrepairandmaintenanceincreasedby7.3%.Whilenotenoughtooffsetthefallsinthelongertermseriesitdoesprovideaboostforthequarter2figuresand raise the probability that construction will continue togrowinJune.

CPA ForecastsThepoorerperformanceofconstructionoutputhasled to lower forecasts for the industry in the coming years. According to the Construction Products Association(CPA)totalgrowthintheconstructionindustryisforecasttobe0.1%in2018,downfrom5.1%in2017(seefig.2.2).Thisislargelyattributableto the slowing of economic growth and the uncertain environment for business investment and specificallyuncertaintysurroundingBrexit.Thelevelofgrowthisforecasttoincreaseto2.7%in2019withtheexpectationthatthereismoreclarityontheUK’snew trading environment post Brexit. However, given the lack of progress thus far on the Brexit talks there issignificantvariabilityimpliedintheforecasts.

Construction SectorBarbour ABI data on all contract activity indicated thatthevalueofallcontractactivityinJune2018was£4.4 billion based on a three month rolling average. Thisisa3.2%decreaseonMayandisthethirdconsecutive month of decrease with contract awards valueshavingdeclinedby17.8%betweenMarchandJune2018.Comparisonswith2017showthatJune2018was20.3%downonJune2017(seefig.2.4).Quarterly analysis also indicates that for the three monthstoJune2018totalcontractawardswere

3.2% reduction in June sees contract awards values reach a new low point but both infrastructure and hotels saw some growth for contract awards.

3.2%Decrease in contracts from May 2018

CONSTRUCTION SECTOR 2.1

Construction activity by sector | Source:ONS


CPA forecasts | Source: Construction Products Association

Construction declined for the third month in a row in June with the total value of construction contracts at £4.4 billion.


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CONSTRUCTION SECTOR… Junecontinuesdownwardtrend

£13.8billionwhichcomparesto£15.8billioninsamequarterin2017.ThenumberofcontractsawardedinJunewas836whichisamarginal(1.1%)reductiononMaybut33.3%lowerthanJune2017.Theoverallpictureforconstructionin2018showsthatQ2hasbeen marked by a downward trend in both value and also number of contract awarded.

Projects by RegionTheSouthEastwastheleadingregionforcontractawardsinJunewith14.7%share,followedbytheNorthWestwith13.1%shareofcontractawards

andthenLondonwith12.7%share(seefig.2.3).ThehighestvaluecontractawardinJunewasintheNorthWest with the £120 million residential development StJohn’sRiversideTower2attheRiverIrwellcanalbasininGreaterManchester.TheEastofEnglandwasthe location for the second highest contract award inJunewiththe£115millionLutonAirportLightRailLink which will see the provision of a new 2.1 km light rail link between Luton Airport Parkway Station and themainairportterminal.Thenexthighestvaluecontract award was the £100 million residential developmentatWaterhouseGardensinMaidstonetoprovideatotalof310flatsaswellasretailandleisureunits and a new health centre.

Types of ProjectTheresidentialsectoraccountedforthelargestshareofcontractawardsinJune2018with37.5%share.Thiswasfollowedbyinfrastructurewith20.9%shareofcontractawardsvaluesandindustrialwith11.4%share(seefig.2.5).Thelargestresidentialcontractwasthe£120millionStJohn’sRiversideTowerdevelopmentinGreaterManchesterfor305flats.ThehighestvalueinfrastructureawardwasintheEastofEnglandandwasthe£115millionLutonAirportLightRailwayproject.TheEastMidlandswasthelocationfor the largest industrial contract award and was the£80.4millionPhase1BoftheMidlandsLogisticsPark at Corby.


Construction activity trends | Source: Barbour ABI

0

200

400

600

800

1000

1200

1400

Num

ber of Contracts

0

1000

2000

3000

4000

5000

6000

7000

8000

Valu

e (£

mill

ion)

J J A S O N D J F M A M J J A S O N D J F M A M J2016 2017 2018

Rank Project Value (£m) Region Sector

1 Luton Airport – Light Rail Link 115 East of England Infrastructure

2 WaterhouseGardens,Maidstone– 310flatsandmixeddevelopment 100 SouthEast Residential

3 UpperWarren,Phase1B&2B– 250 houses 100 NorthEast Residential

4 TunbridgeWellsCivicDevelopment–CivicCentre,theatre&offices 90 SouthEast Commercial

&Retail

5 MidlandsLogisticsPark–Phase1B 80.5 EastMidlands Industrial

6 CardiffUniversity–TranslationalResearchFacility(TRFBuilding) 80 Wales Education

7 Burrell Collection refurbishment 66 Scotland Infrastructure

8 PloughLaneredevelopment– 602 apartments 60 London Residential

9 EllesmerePortWasteWater TreatmentWorks 60 NorthWest Infrastructure

10 EastLeedsOrbitalRoad– Dual Carriageway 55 Yorkshire

&Humber Infrastructure


Top ten biggest projects by value | Source: Barbour ABI

CONSTRUCTION SECTOR 2. 3

Locations of contracts awardedSource: Barbour ABI

CONSTRUCTION SECTOR 2. 5

Type of projects | Source: Barbour ABI

Residential

Industrial

Commercial & Retail


Medical & Health

Education

Infrastructure

10

21

7

2

38

11

%10

8%

5%

7%

13%

5%

9%

8%9%

8%

13%

15%

East Midlands

East of England

London

North East

North West

Scotland

South East

South West

Wales

West Midlands

Yorkshire & Humber

The South East accounted for 14.7% of the contract value in June, which included two of the top five biggest projects across the month.


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