Residential falls 43% as contract awards disappoint in February

Residential falls 43% as contract awards disappoint in February

Barbour ABI has released its latest snap analysis of construction contract awards and planning applications for February, noting a disappointing month for awards value.

Residential awards were a key driver, with a 43% monthly fall. Residential planning approvals and applications are currently weak, suggesting trouble ahead for housebuilding targets. This is driven by the Bank of England’s decision to increase the base rate to 4% suppressing demand from potential buyers. Increased energy and material costs are also increasing the cost of construction, making residential developments less viable in the current climate.

Infrastructure also produced a disappointing month in terms of contracts awarded, despite continued government support for national projects. However, an 85% increase in planning approvals suggests a positive outlook thanks mainly to windfarm and road project approvals, alongside large applications for solar farms and battery storage facilities.

Barbour ABI Chief Economist Tom Hall commented:

“So far, 2023 appears to be ushering in a more subdued planning environment. Contract awards disappointed with £5.2bn in February, a monthly fall of 30%. The commercially sensitive sectors appear to be on lower paths compared to 2022.

“The residential sector, in particular, has seen large falls, with a 43% monthly fall and a third less than the 2022 monthly average. The infrastructure sector produced a rare disappointment with £1.1bn; this was only the second month below the long-run average since Autumn 2021.

“More positively, the healthcare sector had another exceptional month with £500m. Three of the last six months have been around the half-billion mark. And education is showing some small improvement, also seeing £500m in February – so far, 2023 is 20% up on 2022.

“Meanwhile, planning approvals staged a partial recovery in February thanks to stronger infrastructure, warehousing and healthcare numbers – but commercially sensitive sectors stayed subdued. And planning applications got off to a satisfactory start to the year, again thanks to strong infrastructure and healthcare activity.”

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