Election uncertainty still weighing heavy on construction starts

UK construction continues to feel the impact of the general election as activity drops for the third consecutive month, according to figures released on the 2nd July by industry analysts Glenigan.

Glenigan Index for JulyThe Glenigan Index for July, which covers the value of projects starting on site during the three months to June, has declined by 24 percent year on year as housebuilding, office, retail and civil engineering activity contracted sharply. The fall was prompted both by decisions on government funded projects being postponed in the immediate run-up to the election and by private developers delaying project starts until the political outlook was clearer.

Civil engineering projects have seen the sharpest decline, with the value of underlying project starts plummeting 46 percent against a strong performance in the second quarter of 2014.

Non-residential starts also contracted sharply, being 20 percent lower than a year ago. All non-residential building sectors contracted, with offices suffering the sharpest fall to just half the level seen a year ago. In contrast industrial projects held-up relatively well, slipping just 1 percent.

Government funded areas also declined with the value of education and health starts dropping by 14 percent and 25 percent respectively.

Commenting on this month’s figures, Allan Wilén, Economics Director at Glenigan, said:

“Pre-election jitters continued to dampen project starts in the immediate aftermath of the election. The current dip in project starts will hold back the pace of output growth this year.”

“However the election result has reduced political uncertainty in the near term and we anticipate a bounce back in private sector project starts over the coming months as investor confidence returns.”

He added:

“Less encouragingly, the Government has announced both a scaling back of Network Rail’s capital programme and the early removal of support for on-shore wind farms. This suggests that the flow of civil engineering projects will be increasingly constrained over the next two years”

“We also expect public sector funded work to be constrained by Government efforts to tackle the budget deficit. A clearer picture may emerge following the forthcoming ‘emergency’ Budget.”

Residential project starts also declined, dropping by 18 percent due to falls in both private housing and social housing projects starting on site. The drop in private housing starts is in sharp contrast to the positive trend seen over the last two years, and has largely offset the surge in project starts recorded during the first quarter of 2015. The decline in social housing starts was anticipated following the tightening in funding for registered landlords.

The slide in project starts was felt across almost all of the UK in the last three months. Only the East Midlands and the North West of England saw a rise in project starts against a year ago supported by increases in residential and industrial project starts.