UK construction activity hits ‘record’ levels in March but outlook is more challenging


NEW research has shown that later stage UK construction activity hit ‘record’ levels in March, but a drop in planning applications could result in a downturn over the coming months.

Those were the findings of the latest Snap Analysis monthly report from Barbour ABI. The research looks at the three stages of the planning process – applications, approvals and contract awards – for construction projects across the UK in a range of sectors and geographical regions.

Tom Hall, chief economist at Barbour ABI, said, “Later stage planning continues to go from strength to strength. It is excellent news that later stage planning is at record levels, particularly in the commercially sensitive sectors. We’ve seen some of the highest levels of contract awards in more than a year in both the residential and commercial construction sectors.

“The major office redevelopments being kicked off in London indicates that for many companies located in the capital, Covid-induced working from home policies could be being phased out. There are however a lot of uncertainties and risks at the moment: weakness in the domestic economy, a record tax burden coupled with high inflation, continuing shortages of goods, Brexit impacts and public sector austerity. These all increase the chance of a slowdown in construction as we move into the summer. We’ve seen a slowdown in planning applications that may be a foreshadowing of this.”

March’s analysis revealed construction is currently ‘very buoyant’, with £8.6 billion of contracts agreed during the month. This helped Q1 to the highest ever quarterly value at an average of £7.6 billion of contracts awarded each month.

£3.5 billion of residential construction contracts were awarded in March. This was a 50% increase on the previous month and the highest monthly amount in more than one year. Barbour ABI added that residential construction activity is ‘fairly well spread’ across the UK with the highest levels being seen in Scotland, Yorkshire, east of England, London, north east, north west, and Wales.

£2.2 billion worth of infrastructure contracts were agreed, while ‘significant’ office construction activity boosted the commercial construction sector, which recorded £1.3 billion of contract awards.

However, the value of contracts awarded in the hotel & leisure, industrial, healthcare and education construction sectors ‘suffered’ in March, especially in the hotel & leisure sector, which dropped by 74% compared to February.

Looking to the near future with planning approvals, there was a fall of 22% over February levels. However, ‘strong’ performances in the residential and healthcare construction sectors meant March was still a positive month.

Infrastructure planning approvals were down after an ‘exceptionally high’ performance in February, however, with £1.5 billion of planning applications approved it was still a positive month. Barbour ABI said this continues to be driven by the development of new renewable energy production and storage facilities.

The level of planning applications approved in the hotel & leisure sector was positive for the second month in more than a year, however the activity is mainly in conference and sports centres with hotel development remaining low.

Healthcare construction performed ‘very well’ for planning application approvals in March, recording a 183% increase on February.

The value of residential planning applications submitted in February was £3.9 billion, while in the infrastructure construction segment it was £1.4 billion. The commercial sector recorded just £480 million of applications lodged, while the figure for hotel & leisure was £180 million. Education planning applications valued at £300 million were lodged, while the figure for healthcare was £120 million.

Tom Hall added, “While the current state of the industry is positive with lots of activity and record-breaking levels of contracts awards and planning approvals in some areas, the horizon is more concerning.”