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I N T H I S A P R I L I S S U E …

Contract awards robust for March but delays now hitREAD MORE

Medical & Health sector not impacted by delaysREAD MORE

London is leading region for contract awardsREAD MORE

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E C O N O M I C C O N T E X T …

Covid-19deliversthefastestandmostsevere economic shock in history

The coronavirus pandemic is delivering the fastest and most severe economicshockinhistory.Withthesituationmovingtoofastforofficialdata to keep up, the severity of the impact is still unknown. All eyes will turntotheONSinearlyMayforMarch’sGDPfigures,butaQ1reductionof as much as 2% does not seem unlikely.Severaleconomicforecastershavepublishedstudiesontheimpactontheeconomy.However,giventhelackofavailabledatatheyarehighlyuncertain. The range of forecasts published to date produce a drop in GDPofbetween5and35%inQ22020.TheMarkit/CIPSPMIsurveyspublishedinMarchreinforcedthisview,withsentimentplungingatthefastestratesince2009.MostforecastsassumeaV-shapedrecoverywhereeconomicactivityrecovers to near previous levels over the remainder of 2020. This appears unlikely, since the length of time frame restrictions will need to be in placeforisuncertain,andtherestrictionscanonlybeliftedgraduallyto

avoidsecondaryoutbreaks.TheWorldHealthOrganisationiswarningthat there may be multiple stages of outbreaks later in 2020 and into 2021, and the Government is starting to communicate that normal conditions will not be able to return until a vaccine is available.Governments and central banks across the world have responded with thelargesteverstimuluspackages,greaterinscopethanthoseafterthe 2008 crisis. The Bank of England has slashed the base rate to 0.1% andexpandeditsQuantitativeEasingprogramme.TheTreasuryhasannounced several unprecedented measures, including:� cashflowsupportforlargebusiness,� a lending programme for small businesses,� thedeferralofVATpayments,� relaxingrulesonbanks’capitalreserves,� paying80%ofemployees’wageswhoarekeptonbytheiremployer,and� support for self-employed workers.

Risksofwiderfinancialcontagionexistasrecordcommercialdebtlevelsfrom a decade of ultra-low interest rates leaves many businesses weak torevenueshocks.Consumerdebtisalsoatextremelyhighlevels.Withunemploymentincreasing,(1millionpeopleappliedforUniversalCreditina2-weekperiod)manyUKconsumersareexposed.TheONS’smostrecentsurveyoftheUKeconomysuggestedthatoneinfourUKfirmshave temporarily closed or paused trading.As European governments start to consider how to ease their national restrictions, such as re-opening schools and some businesses, the UK Government agreed an extension to the lockdown for a further three weeks. The death toll appears to be stabilising, however without a large-scaletestingregimeitisdifficulttoseehoweasywillbetoremovewidespread movement restrictions in the near term.

Economic indicatorsFebruary’sUKeconomicdatashowedtheUKcontinuingtoflatlinebeforetheCovid-19outbreak.Three-monthaverageGDPgrowthbetweenDecemberandFebruarywasjust0.1%(seefig.1.1).InFebruaryitself,GDPfellby0.1%.AsnotedabovealargefallisexpectedinMarchas lockdown measures hit the economy.Atthesectorlevel,inFebruarytheconstructionsector(seefig.1.2)fellsignificantlyby1.7%.Afterstronggrowthtowardstheendof2019,sofarin2020ithascontractedby2.5%.Rollingthreemonthaveragegrowthis-0.7%.Othersectorsremainedbroadlyflat,withmanufacturingexpandingby0.5%.MostrecentinflationdataforFebruarysuggestpriceincreaseswereholdingsteadyat1.7%.However,theONS’smostrecentUKeconomysurveyfoundthatinflationforconsumergoodswasrisingsharply,withits basket of high demand products surging by 4.4% in the last month.

Amid unprecedented government intervention, the acuteness and duration of the impact is uncertain.

0.0

0.5

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1.5

2.0

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GDP annual growth (%

)

-0.2

-0.1

0.0

0.1

0.2

0.3

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0.5

0.6

0.7

GDP

Qua

rter

on

Qua

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wth

(%)

Q2 Q3 Q4 Q12016

Q2 Q3 Q4 Q12017

Q2 Q3 Q4 Q12018

Q2 Q3 Q4 Dec –Feb-202019

GDP

grow

th ra

te (%

)

ManufacturingProductionGDP Services Construction

2019 monthly average Jan 2020 Feb 2020 Dec-19 to Feb-20 monthly average

-2.0

-1.5

-1.0

-0.5

0.0

0.5

ECONOMIC CONTE X T 1.1GDP growth | Source:ONS

ECONOMIC CONTE X T 1.2GDP by sector | Source:ONS


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A M J J A S O N D J F M A M J J A S O N D J F M2018 2019 2020

DatafromBarbourABIindicatesthatthetotalvalueofconstructioncontractawardsinMarch2020was£6.9billion,basedonathreemonthrollingaverage(seefig.2.1).HoweverinMarchitselfcontractawardswereweak,fallingto£3.8bnfrom£7.6bninFebruary.InQ12020,thetotalvalueofcontractawardswas£18.9billionwhichis26.0%aheadofthepreviousquarterisalsoa17.0%increaseonQ12019.However,therewas a marked slowdown in the number of contract awards this month at 576whichis42.6%lowerthanFebruary.An instrumental factor in the less positive performance was the adverse winter weather in late January and February with excessive rainfall and floodinginmanyareaswhichmeantmanysiteswereinundatedpreventingany form of works being carried out. Key to the downturn in output was the1.7%declineinrepairandmaintenanceworkswhicheffectivelycancelledoutthe0.6%growthinnewworkfortheFebruary2020quarter.Newworkgrowthsectorsincludedinfrastructurewhichsawoutput

increase by 2.8% on the previous quarter and also public sector new work whichwasupby4.5%.However,privatesectorhousingoutputremainedstatic and there was a 0.4% decline for the private commercial sector as wellas3.4%decreasefortheprivateindustrialsector.However,thelargestdecline was in the private housing sector repair and maintenance works whichdecreasedby5.6%onthepreviousquarterbutwas9.8%lowerthanthecomparablequarterendingFebruary2020(seefig.2.2).WhilsttheMarch2020budgetincludedanumberofmeasuresthatshould have stimulated the construction sector in 2020 and beyond, these have subsequently been overtaken by the situation surrounding Covid-19.Fortheconstructionsectortheimpactofsocialdistancing

3-month contract awards were strong but March’s in-month value falls to £3.8 billion.

Change Dec 19-Feb 20 to Sep 19-Nov 19

Change Dec 19-Feb 20 to Dec 18-Feb 19

Total All Work -0.2 0.5

All New Work 0.6 2.1

• Public Housing -1.7 9.6

• Private Housing 0.0 -0.6

• Infrastructure 2.8 4.7

• Public (ex Infrastructure) 4.5 1.1

• Private Industrial -3.4 0.3

• Private Commercial -0.4 2.6

Repairs & Maintenance -1.7 -2.6

• Public Housing 2.2 8.8

• Private Housing -5.6 -9.8

• Non-Housing 0.1 -0.1

CONSTRUC TION SEC TOR 2.1Construction activity trends | Source:BarbourABI

CONSTRUC TION SEC TOR 2.2Construction activity by sector | Source:ONS

CONSTRUC TION SEC TOR 2. 3Locations of contracts awarded | Source:BarbourABI

T H E C O N S T R U C T I O N S E C T O R …

Contractawardsrobustbutuncertainty lies ahead

9%

4.2%

15%

7.5%

1.1%

3.6%

4%5.3%

7.5%

27.6%

15.2%

East Midlands

East of England

London

North East

North West

Scotland

South East

South West

Wales

West Midlands

Yorkshire & Humber


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THE CONSTRUCTION SECTOR… Contractawardsrobustbutuncer taintyliesahead

CONSTRUC TION SEC TOR 2.4Type of projects | Source:BarbourABI

45.4% Residential

8.9% Industrial

7.1% Commercial & Retail

7.9% Hotel, Leisure & Sport

0.8% Medical & Health

7.4% Education

22.4% Infrastructure

%

imposed by the Government has been immense. The initial advice that construction projects should continue has been subsequently superseded by many, but not all, site closures as the impossibility of imposing the two metre rule on many construction trades and the ability to work safely became increasingly apparent. In addition, the fact that many construction workers used public transport in order to get to sites also led to some organisations suspending works on the grounds of being unable to guarantee employee safety. EarlyApril2020hasseenthedelayingofasignificantnumberofprojects and the furloughing of many job functions within construction organisations as well as manufacturers of key materials such as bricks and blocks. In addition, the issue of building materials supply has also been added to the equation with many of the leading merchants operating “only essential works” initiatives as well as restricting access to outlets by operating online ordering and delivery to site policies. At thispointintimetheoutlookfortheconstructionsectorisforsignificantreduction in output over the short-term.

Construction SectorDatafromBarbourABIindicatesthatthetotalvalueofconstructioncontractawardsinMarch2020was£6.9billion,basedonathreemonthrollingaverage(seefig.2.1).Monthlycomparisonsshowthatthisisanincreaseof6.4%onFebruarywhilstannualcomparisonshows29.2%increaseonMarch2019.InQ12020,thetotalvalueofcontractawardswas£18.9billionwhichis26.0%aheadofthepreviousquarterisalsoa17.0%increaseonQ12019.However,therewasamarkedslowdowninthenumberofcontractawardsthismonthat576whichis42.6%lowerthan February.

Project by RegionAnalysisbyregionshowsthatLondonmaintaineditsleadingpositionholdingashareof27.6%ofallconstructioncontractawardsinMarch.ThesecondlargestregionwastheSouthEastwith15.2%ofawardsandwascloselyfollowedbytheYorkshire&Humberregionwhichaccountedfor15.0%ofallconstructioncontractawards.Waleswasagainthesmallestregionwithattributableshareofjust1.1%(seefig.2.3).InMarchLondonwasthelocationforthelargestcontractaward,whichwasthe£500millionPlumstead,WestThamesmeaddevelopmentinWoolwich.TheprojectwillseeBerkeleyHomesEastThamesprovideatotalof915residentialunitsinsevenstructuresaswellasgroundfloorcommercial space. The second largest contract award this month was the£335millionA63CastleStreetImprovementsinKingstonUponHull.AwardedbyHighwaysEnglandtoBalfourBeatty,theprojectinvolvesimprovementsbetweentheStJamesandPorterStreetjunctiontotheMarketPlaceandQueenStreetjunctionandhasa60monthtimeline.ThereweretwocontractawardsvyingforthirdplaceinMarchandwerebothvaluedat£100million.TheLandinginBroadway,MaidenheadwillseeMcAleer&Rusheprovideatotalof375residentialunitsaswellascommercialspaceinfourstructureswhilstintheYorkshire&Humberregionthe£100millioncontractforthePremierOilEasingtonTerminalOnshoreGasPipelinewasawardedtoSaipem.

Rank Project Value (£m) Region Sector

1 Plumstead, West Thamesmead – plots 2, 3, 4, 7 & 8 500 London Residential

2 A63 Castle Street improvements 355 Yorkshire & Humber Infrastructure

3 Premier Oil – Easington Terminal Onshore Pipeline 100 Yorkshire & Humber Infrastructure

4 The Landing, Maidenhead – buildings A, B, C & D 100 South East Residential

5 University of Glasgow – Adam Smith Business School & Post Graduate Hub 86 Scotland Education

6 Oval Gas Works, Kennington Oval – 738 flats, offices & cafe 72 London Residential

7 A19 Norton to Wynyard widening DELAYED 63 North East Infrastructure

8 Camden Town Hall refurbishment DELAYED 63 London Infrastructure

9 44 Clapham Common, South Side – 296 flats and commercial development 60 London Residential

10 Birmingham 2022, Commonwealth Games – Alexander Stadium redevelopment DELAYED 60 West Midlands Hotel, Leisure & Sport

CONSTRUC TION SEC TOR 2.4Top ten biggest projects by value | Source:BarbourABI

Types of ProjectTheresidentialsectormaintaineditsleadingpositioninMarchaccountingfor45.4%ofallconstructioncontractawards.Withashareof 22.4% of awards, infrastructure was the second largest sector this month and was followed by the industrial sector with attributable share of8.9%(seefig.2.4).ThelargestresidentialawardthismonthwasthePlumstead,WestThamesmead development in Woolwich which will also include 5,303sqmofcommercialspace.ThelargestinfrastructureawardwastheA63CastleStreetImprovementsinKingstonUponHullwhichwillalsoincludeanewbridgeandinfrastructureimprovements.Rochesterwas the location for the largest industrial contract award which was the£35.5millionPlot1bLondonMedwayCommercialParkwhichwillprovideanew35,554sqmwarehousefacility.

COVID-19 UPDATE209 PROJECTS DELAYED

Due to the impact of Covid-19 209 of the contract awards reported on in March 2020 have now been put on hold at a total value of £1.2 billion


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