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Evening Standard
Evening Standard
Business
Daniel O'Boyle and Michael Hunter

Dark clouds over construction sector despite GDP growth, as building work slips to 11-month low

The construction sector had its worst month in almost a year, as “economic uncertainty” and bad weather led to the biggest drop in new projects since the covid-19 pandemic hit.

The decline came despite GDP figures showing the UK economy as a whole grew by a better-than-expected 0.3% in January, and comes days after a survey revealed contractors were struggling to fill 2023 order books.

Construction output dropped by 1.7% in January, its biggest decline since June, while the total value of building work came to £14.84 billion, the lowest since February 2022.

New project output fell by 4%, the sharpest decrease since Covid-19 put work on hold in March 2020, with new infrastructure especially hard-hit.

The ONS said its surveys of contractors suggested economic uncertainty led to delays and cancellations of projects. Heavy rain also played a part in the decline in new work, but led to more demand for repairs.

Clive Docwra, managing director of construction consultancy McBains, said hiring difficulties also hamstrung the sector. Ahead of next week’s Budget, he called on ChancellorJeremy Hunt to reform immigration rules to make it easier for builders to hire foreign workers.

“However, we also need client demand to be there – and today’s figures show that to be a concern,” he added.

Investec economist Sandra Horsfield added that higher interest rates could have played a part as well.

“We wonder to what extent these are symptoms also of higher interest rates starting to bite, mirroring the struggles reported by the construction sector in the US,” she said.

Yet the London housing market may have bucked the trend, as London-focused developer Berkeley Group said prices stayed ‘firm’ in the aftermath of the market volatility sparked by September’s mini-Budget.

Berkeley said today its performance was “resilient” in “volatile” markets between November and the end of February, when turmoil in the mortgage market roiled the industry. With financial markets upended by the short-lived spending plans of Liz Truss’s government, mortgage lenders pulled hundreds of fixed-rate deals, leading to a collapse in sales. Berkeley’s own sales tumbled by 25%.

The developer behind the Broadway East development in Bethnal Green and Camden Goods Yard said current trading is “in line” with those levels, which it revealed in December. Ahead of the Budget, Berkeley added overall pricing “remained firm and “above business plan levels”.

Nonetheless, it pledged to take “a cautious approach to releasing new phases to the market” while “prevailing volatility … persists.”

It stood by existing guidance for £600 million in pre-tax earnings guidance for the year. In a sign of medium-term confidence, it also underlined its three-year forecast of aggregate earnings above £1 billion for the following two years.

In a hopeful sign for the industry, Berkeley said that build cost inflation was showing early signs of moderating.

A further vote of confidence in London housebuilding came from Aviva, which announced a £100 million joint venture with developer Stories today: the first project for its in-house capital arm.

The insurance giant said it would use its “financial strength” to help execute complex projects, and revealed  the JV is already under offer on a residential build-to-rent development opportunity in London.

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