Michael Dall from Barbour ABI says there is still a long way to go, but infrastructure projects are a definite bright spot for the industry.
Michael Dall
Although always caveated, almost all recent reports into industry trends, including output and new orders figures from the Office for National Statistics (ONS), have shown very early signals of an upturn. Construction project data collated by Barbour ABI supports this, and as talk of the potential upturn increases, so does the mood within the industry – a positive and welcome shift following a lengthy period of decline and negativity.
But those caveats must not be forgotten. By no stretch of the imagination is the industry back to its pre-recession peak, nor do we expect it to reach that high in coming months. The sectors responsible for boosting the figures over the last 12 months must continue to do so in order to achieve any level of sustained growth.
The residential sector, private housing in particular, has been the main driver. Thanks, in the most part, to a government focus on the housing market and the implementation of schemes such as Help To Buy, confidence has risen among the big house builders and we’ve seen an increase in new build construction projects as investments are made.
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However, housing isn’t the only area performing well. It has been encouraging to see signs of strength in other sectors – those that have been quietly peddling away in the background. Construction projects relating to infrastructure, for instance, appear to be in a relatively healthy position after a period of peaks and troughs.
In 2012, infrastructure, along with most other sectors, struggled somewhat. According to ONS figures, output declined by 13.2% over the course of the year. The figures seemed damning and across the industry, there was little hope of a turnaround. The autumn 2012 Budget made promises of finance and while projects in the pipeline were key in boosting the sector with guarantees, the results of these seemed too distant to lift spirits.
It was earlier this year when we noticed a change. Looking at new orders data for the industry, collated by Barbour ABI for the ONS, infrastructure-related construction increased by a significant 46% from Q1 to Q2 2013.
Again, this comes with a caveat, as data for this sector is liable to sudden irregularities due to “one off” projects of high value knocking the figures out of balance. But there was an increase nonetheless, and with it came renewed positivity.
In June this year, the Government Infrastructure Statement was presented to the House of Commons by chief secretary to the Treasury, Danny Alexander. It outlined the investment plans for the rest of the decade and promised a huge boost to infrastructure from 2015 onwards.
There is debate about the effect this has had on the sector so far and how it will impact on expansion in the near future, after all, the plans need to come into fruition to equate to additional spending and have the desired impact on industry growth. However, it did provide a direction of travel for construction. Shortly afterwards, we saw yet more positive signs in the form of a 0.7% rise in GDP for Q2 of 2013, which was supported by an overall steady picture of expansion from construction.
With all that said, as far as recent times go, infrastructure construction is looking pretty healthy at the moment and is certainly playing a key role in keeping sentiments up.
Michael Dall is lead economist at Barbour ABI.
