New construction orders - January 2007: Expert Analysis (Benchmark)

PDF of January 2007 orders

The latest official data reveals an overall fall in new orders placed with contractors during the three months ended January, both compared to the previous three months and a year earlier.

After rising robustly for much of last year, new orders for commercial projects stalled during the three months to January, with new orders down 13% both compared to the previous three months and a year earlier. However, the performance within the commercial sector was mixed. New orders for offices continued to rise firmly, confirming expectations that office construction is continuing to gather momentum, buoyed by increased demand for office space in the key central London office market.

However, while PFI education new orders rebounded during January, overall order volumes were down sharply, both against the previous three months and a year earlier. Similarly, PFI health order volumes continued to slip over the same period. The weakness in PFI health projects has partly been offset by a rebound in the flow of traditionally funded health projects, which rose by almost a quarter during the three months to January, after falling away for the past 18 months. This helped to support a rise in public non-residential new orders, which were up by 6% compared with the same period a year ago.

While infrastructure new orders remained down both against the previous three months and a year earlier, order volumes jumped sharply in January. Indeed, the sharp rise in infrastructure orders during January is due to the Highways Agency awarding a £340m contract for phase 1 of the M1 widening in the East Midlands. In addition, water and sewerage industry orders also strengthened markedly compared with a year earlier, supporting expectations of a pick-up in infrastructure output during 2007 as water industry and Highways Agency programmes finally gather momentum. In contrast, after the sharp jump in new orders for the electricity industry, as well as for gas, communication and air projects seen last year, order volumes fell back during the three months to January.

Order volumes for public housing projects picked up markedly last year and although new orders slipped back compared with the previous three months, order volumes remained virtually unchanged compared with a year earlier. Private housing new orders were sluggish for most of 2006. Recent comments from housebuilders have sounded a cautious note. A 4% slip in new orders during the three months to January appears to confirm this cautious view.