Construction Market Overview: November 2023

A mixed view for monthly construction activity, as forecasts predict a disappointing end to 2023

The ONS have published their construction output data for September 2023, showing that monthly construction output increased by 0.4% in volume terms, solely due to an increase in repair and maintenance of 2.1% for the month partially offset by a decrease in new work of 0.8%. Alongside the monthly figure, construction output increased 0.1% for Q3 2023, due to growth in September following on from two months of falls. Overall, the annual rate of construction output growth for the 12 months to September was 3.9%, slowing from the record annual growth of 10.4% recorded in May 2022.

In contrast to this, October data from S&P Global/CIPS UK Construction PMI shows that construction activity continued to decline at a sharp pace. The Index increased very slightly to 45.6 from the 45.0 seen in September, signalling a continued decline in total construction activity, and marking the second lowest monthly reading since May 2020. Housebuilding activity continued to be the largest negative influence on construction activity as it decreased for the eleventh consecutive month in October, and at a steeper pace than any other construction sector.

The CPA have published their latest Construction Industry Forecasts for Autumn which expect construction output to fall by a total of 6.8% in 2023, similar to the 7.0% contraction predicted in their summer forecasts earlier in the year. They also anticipate construction output will fall by 0.3% in 2024, a downward revision from the 0.7% growth forecast in the summer. Overall, the UK economy is expected to flatline throughout 2024, holding back the recovery in major construction sectors such as new build housing to 2025.

Glenigan have also published their Construction Industry Forecast for 2024-2025, also expecting a disappointing end to 2023. However, they forecast gradual growth in project starts over the next two years, as all sectors covered in their forecast will experience some recovery in 2024 driven by public investments and parts of the private sector.

The DBT construction material price index for all work decreased 0.7% month-on-month in September and was 1.8% lower than a year earlier, marking the fourth consecutive annual decrease. Construction material prices for new housing increased 1.2%, with repair and maintenance and other new work falling by 1.7% and 4.0%, respectively in the year to September 2023.

House prices show signs of improvement amidst a subdued housing market

The HMRC report that in September the number of property transactions in the UK totalled 85,610, 1.0% lower than August, marking the first month-on-month decrease since May, but was 17.0% lower than compared to a year earlier (just before the impact of last years ‘mini budget’). And the Bank of England report that in September the number of mortgages approved for house purchase was 43,328, decreasing 4.7% from the 45,354 seen in August, and is 32.5% lower than a year earlier. These figures now mark the lowest volume since January and are also 33.8% lower than the 2018/19 pre-pandemic average.

Nationwide report that annual house price growth improved slightly for September with a fall of -3.3% from the -5.3% seen in October, but this still points to housing market activity remaining weak going towards the end of 2023. And Halifax report that annual house prices were -3.2%, from -4.5% seen in September, despite the housing market remaining subdued. On a monthly basis, Nationwide report that house prices increased 0.9% in October following the 0.1% increase seen in September. Halifax report that monthly house prices increased 1.1% in October, bringing the run of six consecutive monthly falls to an end. Finally, data from the ONS and Land Registry shows that UK house prices increased 0.2% in the twelve months to August 2023, compared to the revised estimate of 0.7% seen in the year to July 2023.