At least one company in the UK housebuilding sector is optimistic about the market, despite the widespread slowdown in the past six months. Persimmon this month announced another year of record profits and “a marked upturn in demand since early 2005”.

This is in contrast to a more cautious recent statement from fellow volume housebuilder Wimpey, and survey evidence from manufacturers of building materials which reveals that optimism is scarce. The CBI says that about one in every two firms polled sees no change in the outlook for business in the first three months of the year, while 47% expect conditions to be less buoyant than in the fourth quarter of 2004.

A balance of just 21% expects that demand, as indicated by new order intake, will rise over the coming months, and 29% report below normal order books. Output is expected to remain broadly unchanged, but 45% of suppliers expect the volume of deliveries to the domestic market to be lower than in the fourth quarter of last year.

Confidence reversed

The latest survey of British consumers by GfK Martin Hamblin for the European Commission finds that January’s rise in confidence was reversed in February. But unemployment is low and interest rates are probably near their peak, suggesting that consumers are not about to abandon what is an already weak housing market.

Property website Hometrack recorded the smallest monthly fall in house prices in February since last August, accompanied by a 28% increase in the number of buyers registered with estate agents. Nationwide reports a 0.5% rise in house prices in February – the second successive monthly increase, and the Bank of England lent 0.8% more to homebuyers in February than in January.

The monthly index of activity in the construction industry, from the Chartered Institute of Purchasing and Supply, remained above the no-change mark of 50 in January, at 54.2. But that compares with 55.5 the previous month and signals the least robust rate of growth in seven months.

The seasonally adjusted housing activity index slipped to 52.7 in February, from 54.9 in January, while the commercial sector index slowed to 55.8. Civil engineering activity increased for the first time in three months, and helped raise the February new orders index to 56.9, from 55.6 the previous month.

The index of construction input price inflation registered 68.2 in February, down from 71.2 in January but nonetheless indicating rapid cost inflation. Official figures show that in January the factory gate price of builders’ carpentry and joinery products rose at an annual rate of 3.6%, up from 2.9% in December.

UK-wide figures from the National House Building Council show 41,824 applications to register new home starts in the fourth quarter of 2004, a 1% decrease on the same period in 2003. Of the total, 37,318 relate to private sector activity, a fall of 1% on the same quarter of 2003. Housing association starts increased at an annual rate of 5%.

The NHBC reports that the market share of timber frame houses begun in the fourth quarter in Great Britain edged up to 15% from 14% a year earlier, while in Northern Ireland the proportion sank from 8% to 7%. However, it comments that some timber frame houses are privately built and not included in the data.

Looking to future demand for timber building products, officials estimate that the volume of new construction orders placed with contractors in the fourth quarter of 2004 for private-sector housing was 13% up on the fourth quarter of 2003. In value terms, orders were 23% higher than a year earlier.

Non-residential orders

New orders for commercial projects rose 17% year-on-year in the fourth quarter, and contracts for industrial buildings dropped by 5% on a year earlier. Contracts for infrastructure work fell by 14% compared with the third quarter of 2003.

Construction output will rise by 2.9% this year and by 1.8% in 2006, down from 4% last year, according to a new forecast by Cambridge Econometrics. And Oxford Economic Forecasting echo these predictions, expecting 2.8% growth in 2005, with a switch in the driver of expansion from residential to non-residential projects. Further ahead, the £3.6bn worth of Housing Corporation grants for 2006-08 to the private sector is expected to result in the building of 65,000 new homes.