Contract awards provide £7.6bn boost to construction sector

The beleaguered construction industry received a boost in July as the value of contracts awarded to suppliers reached £7.6bn, the highest monthly value this year, according to Construction analysts Barbour ABI’s latest analysis.

The milestone follows a negative period which saw awards fall 21% between Q1 and Q2.

A 184% monthly increase in the industrial sectors, including manufacturing, warehouses, and military projects was the driving force behind the uptick, alongside a positive month for infrastructure.

Infrastructure contributed with £2.0bn in contract awards, mainly from renewable power generation, and the commercial sector also had a good month with £1.1bn awarded in large office projects.

Infrastructure also had an exceptional month for planning approvals, posting £5.1bn, thanks to the £2.6bn Hornsea Project 4 and other renewable generation projects, contributing to £13.bn of approvals in total - up from £8.4bn in June

Meanwhile, the industrial sector saw its highest planning approval values in over a year, and the hotel and leisure sector saw the highest since January 2021 thanks to the Gateshead Quay Arena redevelopment. Commercial construction also returned the averaging levels.

Housebuilders continue to struggle

Despite the good news elsewhere, residential construction continued to struggle against various market factors including high-interest rates, inflation and the gridlocked planning system. £4.7bn in approvals provided a glimpse of sunshine, but contract awards remained low at £1.8bn - 15% down compared to 2022.

Barbour ABI’s analysis of planning applications continues to highlight the bearish outlook of many housebuilders. There was just a £3.4bn average monthly value of planning applications in Q2. The weakest since Q2 in 2020.

Barbour ABI Chief Economist Tom Hall commented: “Our latest analysis shows some respite after a difficult period for the construction industry. However, given the uncertainties in the wider economy, these improved levels are unlikely to continue over the coming months. Meanwhile, the residential sector, hammered by high-interest rates and inflation, continues to struggle to keep its head above water.

"Planning applications, which are a strong indicator of future output, saw a very weak end result of £7.5bn per month in Q2, the lowest quarterly result since the first Covid-19 lockdown. Overall planning application activity was 23% lower in Q2 compared to last year. We also saw a 45% decrease month on month in infrastructure planning applications in last month’s figures, so this sector is unlikely to prop up the industry for much longer.”