The British economy expanded at a slower rate in the second quarter of this year than initially thought, growing by 0.6% compared with the first quarter and at an annual rate of just 1.2%. But total construction output grew by 1.5% on the quarter, and at an annual rate of 7.4%.

Economic indicators compiled by NTC Research suggest that national growth will slow during the first half of 2003, after peaking in the final quarter of this year. But orders already placed with contractors for construction work signal that continued robust growth in the industry is firmly on the cards.

Official figures show that the total volume of new construction output in the year to the second quarter of 2002 was 9% up on the previous year, while repair and maintenance was 5% higher.

Only the new industrial buildings sector suffered over the year, with work down 6%. In contrast, output of new commercial building, such as shops, offices and entertainment facilities, increased by 9% and new infrastructure projects grew by 11%. In housing, new private sector work rose 5% in the year to the second quarter of 2002, while public sector growth was 14%.

Repair and maintenance work on public housing fell by 4% annually in the second quarter of this year, but grew by 3% in the private sector. In the private non-housing sector repair and maintenance output was up 4% during the year.

Timber frame construction

Statistics on timber frame construction in the second quarter, published by the National House-Building Council, point to an increase in share of the British market to 13%. It had previously remained unchanged at 10% since the end of 2000. The proportion of timber frame dwellings in England rose from 4% to 6% in the second quarter, and from 50% to 55% in Scotland. In Wales, however, it fell back to 4%, from 7%.

Timber frame construction remains predominately employed in detached and semi-detached bungalows (22% and 14% market share respectively). It is used in 13% of detached houses, but in only 8% of terraced houses and flats.

&#8220Surprisingly, in view of the general buoyancy of the industry, optimism has fallen to a seven-month low – largely it appears, because of concern about future activity levels”

The latest on business conditions in construction, provided by the monthly survey from the Chartered Institute of Purchasing and Supply, indicates a continuing, albeit marginally slower, pace of activity. The index of new orders in August remained well above the no-change mark of 50, at 55. This is below the underlying rate of growth in the first five months of 2002 – partly reflecting fewer private sector contracts because of economic uncertainties.

Purchases rise

CIPS says that construction firms increased the quantity of raw material and other purchases for the ninth successive month in August. This put additional pressure on suppliers’ capacity, caused average lead-times to lengthen for the 41st month in a row, and contributed to a further increase in average costs. The seasonally adjusted prices index rose from 65.4 in July, to 67.5 in August.

Surprisingly, in view of the general buoyancy of the industry, the survey reveals that optimism has fallen to a seven-month low – largely it appears, because of concern about future activity levels.

The most recent data on new construction orders suggest that such worries are largely unfounded. Admittedly industrial orders placed during the three months to July were down 31% compared with a year earlier, but new commercial orders were up 13% and infrastructure contracts rose 24%. Contracts for new public sector housing grew by 40% over the year, although private sector housing orders rose by only 2%.

Housebuilding remains strong

And despite the low level of growth in private house building contracts, there is little to suggest that demand is weakening significantly. According to the RICS, an increase in the supply of homes on the market in August – to levels last seen in March this year – led to a slowdown in house price inflation. But price rises remain at more than double their long-run average, even in the midst of the holiday season, which is traditionally a quiet period. A clearer indication of the extent of any price slowdown must await data for the autumn months, says the RICS.