The most recent research from Barbour ABI indicates that the post-covid construction boom could be over, with April’s downward trend continuing into May
Barbour ABI’s Snap Analysis looks at the data for planning applications, planning approvals, and contract awards for the previous month and gives a holistic picture of activity in the construction industry over the short, medium, and long term.
Construction may be in a new, lower phase of activity after its post-Covid construction boom
Tom Hall, Barbour ABI’s chief economist said: “April saw a fairly dramatic fall in activity from high levels to a more mixed picture.
“May’s data was a continuation of this new trend and indicates that construction may well be in a new, lower phase of activity after its post Covid-19 expansion – most likely due to uncertainty over the strength of the UK economy to weather the cost-of-living crisis and the wider geopolitical outlook.”
The overall value of contracts awarded in May was £5.5bn, a return to the long-term average level. The driving forces in May were the industrial, residential and healthcare sectors.
Residential contract awards were worth £2.1bn in May, which is a 16% increase on April and is above the long-term average.
However, it is well below the Q1 2022’s levels of £2.7bn per month. Healthcare construction contract awards soared by 48% in May to £300m, which is consistent with 2021’s above average levels for the sector.
Contract awards in the industrial construction sector were also positive in May with a value of £1.2bn. This figure was driven by logistics and storage projects.
Infrastructure contract awards fell by 43% to £900m, making it the weakest month since November 2021.
The commercial, education and hotel & leisure sectors also recorded weak levels of contract awards in May.
Commercial construction contract awards were worth just £400m, which is a huge drop on the £1bn recorded each month in Q1 2022. This fall is almost certainly due to worries over the state of the economy.
Education was also very weak in May with just £300m of contracts awarded. This is down from £600m per month in Q1 2022 and £500m per month in 2021.
Planning approvals and applications
May was the lowest month since September 2021 for planning approvals, with virtually every sector recording a decrease on April levels.
The industrial sector however had a strong month, with £1.5bn of projects receiving the go-ahead.
The longer-term outlook indicated by the value of projects submitted for planning approval is looking relatively healthy, with £9.2bn of applications submitted. However, the picture is very mixed across the sectors, with the infrastructure, healthcare and education sector having a strong month, whilst residential received a 34% drop in terms of planning applications.
The outlook is ‘not all negative’
Hall added: “There is no doubt that concerns over the strength of UK economy and the wider geopolitical situation are having a depressive effect on the construction industry, however, the outlook is not all negative.
“New construction activity is still happening, at broadly long-term average levels instead of the high levels seen over the second half of 2021 and the Q1 of 2022. Generally, activity has flipped back to infrastructure and public sector construction, with commercially sensitive sectors weaker, which is not unexpected.”
