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Could housing be the saviour of the construction sector?

Could housing be the saviour of the construction sector?
The UK's construction sector is enjoying somewhat of renaissance period thanks to a number of highly positive months.

As 2013 drew to a close and many celebrated the dawn of the new year many construction companies could look back on the past 12 months with a sense of pride. The Office for National Statistics (ONS) published a report in December which highlighted a number of positive periods for the construction sector. During October output had grown by 2.2 per cent which represented a 5.3 per cent increase on the same a year previous.

This positive performance was just the tonic the sector needed after years in the doldrums following the recession. When the UK entered the tough trading condition following the economic downturn of 2008 it was the construction industry that took a major hit with work slowing down considerably. With order books falling away and a lack of projects to take on it caused a number of firms to go under but those that managed to pull through this difficult period are now looking to prosper.

In the build up to the festive period the Markit/CIPS UK Construction Purchasing Managers' Index noted that construction output had hit its highest rate since 2007. The report explained that the industry was moving at its fastest pace since August 2013 and November saw it grow to 62.6, up from the 59.4 recorded in October. Any figure over 50 indicates growth in the sector.

Speaking about the figures, Tim Moore, senior economist at Markit and author of the UK Construction PMI, said: “Construction growth is still coming from a low base as output levels rebound from a deep and protracted double-dip recession that only really ended this summer.

“Therefore, while construction’s current growth trajectory may be the steepest for over six years, there is still a huge loss of output to recoup before the sector reaches its pre-recession peak."

In both the Markit/CIPS UK Construction Purchasing Managers' Index and the report by the ONS, the role of the housing market was mentioned as a defining factor in the recovery of the construction sector. A series of defining moves within property has meant that construction companies have seen their order books fill up once again and begin the long road back to recovery.

Dr Noble Francis, economic director at the Construction Products Association, said: "Unsurprisingly, private housing has been the key driver of recent output growth. Demand in the housing market has been boosted by Help to Buy and, as a consequence, output in the sector rose 6.2 per cent in October compared with September and 16.9 per cent compared with a year earlier.

"In addition, output in the largest construction sector, private commercial, rose 0.8 per cent in October compared with September and grew 8.7 per cent compared with a year ago, driven primarily by major projects in London."

One of the contributing factors in the housing sector's hand in helping construction has been the emergence of the Help to Buy scheme. This initiative, set up by government, allows first-time buyers to pay a fraction of the value of the house as a deposit and then benefit from a government loan to make up the rest.

Prime minister David Cameron has been especially vocal on his praise of the Help to Buy scheme which has helped to support 6,000 applicants in the three months that it has been in force in the UK. The lending has topped a huge £1 billion and allowed hundreds of homeowners to complete the purchase of their first home.

Mr Cameron said: "Too many people have found themselves frozen out of the market in recent years as a result of the size of the deposit required.

"That is why as part of our long-term economic plan we introduced the Help to Buy scheme, so hardworking people with sufficient earnings can get on, fulfil their aspirations and enjoy the security of owning their own home."

While people across the country found it much easier to get their foot on the property ladder thanks to the offers being put on the table by the government, it was the construction sector that was reaping the real rewards. As an influx of property buyers came into the market it has sparked a surge in work for companies up and down the UK. It is hoped that this trend continues throughout 2014 enabling construction to a similar success story to what they did in 2013.

Confidence is high among construction companies for coming year with the latest Markit/CIPS Construction Purchasing Managers' Index showing that optimism had grown to the highest point since April 2007. Mr Moore explained that companies had much stronger growth expectations than at the same time 12 months earlier.

The expert explained that higher employment figures have been reported for seven consecutive months which has been need to meet the soaring demand which has come into firms in the opening part of 2014. Mr Moore warned however that companies need to stay on top of this workload to maintain the strong performance of the industry as a whole and keep clients satisfied with the output.

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Date: 28/01/2014 09:33:09

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