New construction orders - December 2006: Expert analysis (Benchmark)

PDF of December 2006 orders

Overall, new orders placed with contractors during 2006 were 6% ahead of a year earlier, pointing to a further improvement in sector activity this year. However, the latest figures reveal a more subdued finish to the year, with order volumes during the fourth quarter flat compared with a year earlier and down 3% on the previous quarter. 

Infrastructure has been a consistent weak spot, with new orders falling 27% last year. While new orders picked up slightly during the fourth quarter, supported by an improvement in water industry projects in recent months, they remained 18% down on a year earlier. Indeed, new orders for water and sewerage projects during the final quarter were 17% up on the same period a year ago, having been disappointingly weak for much of last year. New orders for roads remained particularly weak throughout last year, with order volumes down 28% compared with 2005, as the slow progress of both local and strategic road schemes contributed to the continued weakening in sector activity.

The security of the UK’s energy supply has risen up the political agenda over the past two years, which put the need to renew and upgrade the domestic gas and electricity distribution networks into sharp relief. The National Grid is now implementing a major capital expenditure programme and the industry has already benefited from a sharp rise in gas-related work. New orders for gas projects continued to rise sharply last year, up by more than a third compared with a year earlier. Electricity-related construction activity also continued to rise in 2006, boosted by increased investment in both generating capacity and the distribution network. While new orders fell sharply during the final quarter of last year, overall order volumes rose 10% during 2006.

Public housing new orders slipped back during the final quarter of last year when compared with both the previous quarter and a year earlier. Overall, however, new social housing was a public sector bright spot last year, with order volumes up by a third compared with the previous year. In contrast, private housing new orders weakened last year, down 2% compared with the previous year. However, order volumes picked up considerably in the final quarter of 2006, up 11% compared with a year ago, despite expectations of more muted housing market activity this year.

The commercial sector was the key driver of industry activity last year, with order volumes a third higher than during 2005. Although orders during the fourth quarter weakened compared with the previous quarter, order volumes were still 6% up on a year earlier. Within the commercial sector, orders for office projects saw another sharp rise in the fourth quarter, up by 40% compared with a year ago, driven mainly by strong demand in the central London market.

In addition, while new orders for PFI education and health projects have stalled in recent months, overall new order volumes for education projects jumped by a third last year, while health-related activity more than doubled compared with a year ago.