New orders Jan 08: growth slowing, says Construction Products Assocation

Growth in new orders slowed considerably in 2007, ending up only 1% higher than 2006. Dr Noble Francis, economics director of the Construction Products Association, looks at what this means for 2008.

After consistently good growth in construction new orders during 2004, 2005 and 2006, with growth of 9%, 6% and 6% respectively, orders slowed in 2007. There was still growth in orders.

However, new order volumes placed with contractors were only 1% higher than during 2006. Furthermore, the slowdown has been highlighted in recent months with orders falling 2% in December alone.

While orders in 2007 slowed considerably, the good growth in orders during recent years is expected to be sufficient to see growth in construction output during 2008. Uncertainty surrounding the UK economy following the credit crunch has intensified the weakening of housing related consumer lending, further decelerating housing market activity.

Against this background, new orders for private housing fell in December 2007 by 10%. Overall, private housing orders fell by 6% during 2007 and, as a consequence, output in the private housing sector is expected to fall by 4% in 2008 and 1% in 2009 as difficult housing market conditions impact upon developers.

Infrastructure orders rose by 47% in December, and 9% for the final quarter, leading to 2007 infrastructure orders rising 24%, overall, due to a raft of new orders throughout the sector and this is expected to feed through into actual output over the next few years with growth of 8% in both 2008 and 2009.

The growth in infrastructure during 2007 was spread across the country as new order volumes rose especially in the Midlands, North West and London. The volume of water and sewerage related work continues to rise firmly.

New orders in the road-related sector during the forth quarter were down 32% in value terms on the preceding three months, but the value of new orders in 2007, as a whole, remained markedly higher than in 2006.

Rail orders were 38% higher during December compared to November and for the year as a whole, rail and rail-related orders were 29% higher than during 2006.

Public non-residential orders rose by 23% in December compared to November, and despite new orders in quarter four falling 3% compared to the preceding three months, new orders in the sector during 2007, as a whole, rose by 5% compared to 2006 due to a rise in both education, health and entertainment related projects.

One sector that has seen a considerable slowdown recently is private commercial. 2006 saw a 35% increase in new orders compared to 2005. However, growth in the sector during 2007 was a relatively low 2% and during the third and fourth quarters, the sector contracted 15% and 4% respectively.

The sector has mainly been driven, in recent years, by a variety of office projects. However, this has fallen off in the last two quarters and although orders during 2006 should be sufficient to keep output growth during 2008 and 2009, this growth is expected to be relatively low and precede a contraction in commercial sector output during 2010.