Will there be a summer slowdown in construction?

Construction intelligence provider Barbour ABI has released its May Snap Analysis and those in the industry are wondering whether it signals an impending slowdown.

The company’s research has revealed that April’s contract awards and planning approvals were below those in March.

Tom Hall, chief economist at Barbour ABI, said: “After a stellar performance for contract awards in March, activity was always likely to fall in April due to the Easter holidays and a new financial year, coupled with the high inherent volatility of the index.

“The question on everyone’s lips will be is this the start of a fall in sentiment before a full-blown recession in the summer?”

Barbour ABI’s Snap Analysis is a monthly look at the construction industry across all sectors with the data analysed at each stage of the pipeline – contract awards, planning approvals and planning applications.

Contract awards in April were at their lowest level since August 2021 and were down 33 per cent on the previous month.

However, they have been hitting record highs recently and April was still above the long-term average at £5.8bn.

The regular volatility of the index, together with the Easter break, could be the reason for the fall back in April, but it could also indicate a fall in sentiment preceding a summer recession.

The reason for concern is the sectors that the sectors which performed worst in April were commercial and residential, the sectors responsible for the recent record levels of contract awards.

Residential construction contract awards were down 47 per cent in April versus the previous month to £1.8bn, but this is still just below the long-run average.

However, the commercial sector suffered the biggest hit with a drop of 75 per cent of the value of contracts awarded in April vs March 2022.

The short-medium term outlook for construction is indicated by levels of planning applications receiving approval – and April’s picture is a mixed one.

While the level of planning approvals is high overall, the picture is dominated by infrastructure development, especially wind farms. Commercial, hotel and leisure and education recorded very poor levels of planning approvals.

April was an extremely good month for infrastructure planning approvals.

A total of £5.6bn of projects were given the green light, including £4.4bn for three offshore wind farms off the east coast of England.

Residential planning approvals were valued at £3.7bn in April. Although a drop of 19 per cent on March, this is still a good level of activity for the sector.

Overall, £12.3bn worth of planning applications were lodged in March.

Hall continued: “One month does not make a trend, however the sharp falls in commercially sensitive sectors across contract awards and planning approvals, particularly for residential and offices will be cause for concern at the current time.

“On the flip side you could argue that in the face of high levels of uncertainty, the construction pipeline is continuing, at least currently.”