HARD DATA

UK Construction sector – heading for a slow down?

The CEA’s Market Analyst, Paul Lyons, looks at the latest machine sales data and construction market indicators predicting a general market slow down…

Retail sales of construction and earthmoving equipment saw modest 2.7% growth in the first quarter of 2022 compared with the same quarter last year. This reflects a pattern of slowing growth, after sales reached “record” levels last year, the highest since before the financial crash in 2008. Sales reached over 36,000 units in 2021, as shown in the graph below, recording growth of 48% on 2020 levels, as the market recovered from the pandemic.

As the market shows signs of cooling down this year, Off-Highway Research are forecasting that sales of construction equipment in 2022 will be relatively flat, showing growth of only 4% on 2021 levels. The climate of uncertainty has increased this year following the Russian invasion of the Ukraine and has added rising cost pressures to existing supply chain issues for materials and labour availability within the construction sector. This is expected to have a negative impact on the UK construction market and equipment demand in 2022.

The pattern of sales for the major equipment types in the early months of 2022 has been similar to what was seen last year. Sales of Telehandlers (for the construction industry) have remained strong, and in the first quarter of the year have been just under 40% above 2021 levels. In contrast, sales of the most popular equipment type in the UK, Mini/midi excavators (under 10 tonnes) have shown much weaker growth, at just under 4% above 2021 levels in Q1.

Construction equipment sales in the Republic of Ireland are also recorded in the statistics scheme run by Systematics International. The latest update shows that sales in the first quarter failed to match last year’s levels and were 1.5% below Q1 2021. This was not surprising after sales in the second half of last year had slowed to only a 2% increase on the same period in the year before. In 2021 overall, the Republic of Ireland saw equipment sales grow by 26% for the full year, after a strong first half year.

Construction output is expected to slow down in 2022

The UK construction Purchasing Managers Index (PMI) published by IHS Markit is a good indicator of sentiment within the UK construction industry. The April update is shown in the chart below and suggests continued growth within the industry but at slightly lower levels than the early months of the year. This latest survey also indicated the lowest new order volumes for four months and growing concerns about investment intentions and future workloads. In summary, further growth is expected within the sector this year but is likely to be at lower levels. The Commercial sector remained as the strongest performer in the April survey, while Housing remained as the worst performing sector.

The latest figures from the Office for National Statistics (ONS) show that construction output in the first two months of 2022 was 8% above last years’ levels. This follows growth of 12.9% for 2021, as the sector recovered from the pandemic.

The Construction Products Association (CPA) published their Spring forecast for the UK construction market in May. This latest update shows a slowdown in the rate of growth expected for 2022 to 2.8%, compared with the previous forecast of 4.3%. This follows output growth of 12.9% in 2021, as highlighted earlier. The lower forecast for growth this year reflects the climate of uncertainty from global issues and the potential impact of price pressures on the industry due to both local and global issues.

The UK construction industry is experiencing rising energy costs and supply constraints associated with the availability of labour and products. It is expected that the impact of these pressures will vary considerably for different sectors of the market. For example, strong growth is anticipated in the industrial sector, with a strong pipeline of warehouse projects due to the shift to online shopping. Infrastructure is also remaining positive due to ongoing work on projects such as HS2, Thames Tideway and Hinkley Point C. In contrast, repair and maintenance of private housing, which is very exposed to price inflation, is forecast to see reduced activity levels this year. See https://www. constructionproducts.org.uk/