Election uncertainty still weighing heavy on construction starts

• Glenigan Index for July down 24% year on year - the largest fall since Q1 2013.
• Office starts fall by a half relative to a year ago and retail starts down 22%.
• Private sector expected to bounce back during second half of 2015, but public sector will remain constrained by budget deficit.
• Reduced flow of Network Rail work and on-shore wind expected to constrain civil engineering.

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

The Glenigan Index for July, which covers the value of projects starting on site during the three months to June, has declined by 24% 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% against a strong performance in the second quarter of 2014.

Non-residential starts also contracted sharply, being 20% 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%.

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

PR contacts: