Construction Market Overview: March 2024

A mixed yet cautiously optimistic outlook for construction as winter come to an end

The ONS have published their construction output data for January 2024, showing that in the three months to January, construction output decreased by 0.9%, driven by a 4.5% fall in new work, while repair and maintenance work increased by 4.0%. This downturn was primarily due to declines in infrastructure and private housing new work, partially offset by gains in non-housing and private housing repair and maintenance. However, January saw a 1.1% monthly increase in construction output, the first rise after three consecutive monthly falls, with significant contributions from private new housing and non-housing repair and maintenance, indicating a mixed yet cautiously optimistic outlook for the sector.

February data from S&P Global/CIPS UK Construction PMI highlights a modest rebound in the UK construction sector, with a near-stabilisation in activity driven by the first rise in new work since July 2023 and the highest business optimism since January 2022. The Construction PMI index increased to 49.7 in February from the 48.8 in January, slightly below the neutral threshold (50.0), marking the highest level since August 2023. Housebuilding displayed significant recovery, contrasting with the more subdued commercial construction sector, attributed to client hesitancy and budget constraints. February data shows signs of cautious optimism for construction, buoyed by expectations of sustained demand and potential economic improvements, including anticipated interest rate cuts.

The DBT construction material price index for all work decreased 0.2% month-on-month in January and was 1.6% lower than a year earlier, marking the eighth consecutive annual decrease. Construction material prices for new housing increased 0.5%, with repair and maintenance and other new work falling by 0.3% and 2.9%, respectively in the year to January 2024.

A stable and optimistic start to 2024 for the housing market

The HMRC report that in January the number of property transactions in the UK totalled 82,000, 1.9% higher than in December, and 11.9% lower than compared to a year earlier. Property transactions have now started to rise following the falls in mortgage rates from August 2023, but were still 15.1% lower than in January 2020 (pre pandemic). And the Bank of England report that in January the number of mortgages approved for house purchase was 55,227, increasing 7.2% from the 50,459 seen in December, and is 40.2% higher than December 2022, which was just after the post-mini budget spike in mortgage rates and slump in approvals.

Nationwide report that annual house price growth improved again for February as it increased to +1.2% from the -0.2% seen in January, returning into the positive for the first time since January 2023. However, Halifax report that annual house price growth slowed to +1.7%, from the +2.3% seen in January, suggesting a relatively stable start to 2024. On a monthly basis, Nationwide report that house prices increased 0.7% in February following the 0.7% rise seen in January and the flat growth seen at the end of 2023. Halifax report that monthly house prices increased 0.4% in January, making it the fifth monthly rise in a row. Finally, data from the ONS and Land Registry shows that UK house price annual inflation stood at -0.6% in the twelve months to January 2024, compared to the revised estimate of -2.2% seen in the year to December 2023.

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