To assist in the planning of your business finance strategy, we have produced this report summarising recent data produced in January/February 2013 by four respected commentators on the UK economy: The Office for National Statistics, BDO, the CBI and Markit/CIPS.
ONS Index of Construction December 2012
- The estimated total volume of construction output in the fourth quarter of 2012 grew by 0.9% compared with the third quarter of 2012. The small rise in the total volume of construction output halts the decline first seen in the third quarter of 2011. The private housing and infrastructure sectors provided the greatest contribution to the increase in the fourth quarter, growing by 5.9% and 4.2% respectively, but are partially offset by decreases in new public non-housing work and private housing repair and maintenance, which fell by 4.9% and 4.8% respectively.
- The estimated volume of all new work grew by 1.6% and repair and maintenance fell by 0.3% compared with the third quarter of 2012.
- The estimated total volume of construction output in the fourth quarter of 2012 fell by 9.3% compared with the same quarter of 2011 continuing the trend of year-on-year falls started in quarter three 2011.
- The estimated volume of all new work fell by 11.6% in the fourth quarter compared with the same quarter in 2011, while repair and maintenance fell by 4.7%.
- The non-seasonally adjusted output for the fourth quarter (months of October, November, December) showed a somewhat different pattern to previous years (although the survey has been running for only three years). Although December has shown large falls compared with November for all three years, in 2012 the fall was bigger. In addition, output has fallen between September and October in the two previous years but rose by 8.8% this year. Finally output has risen between October and November in the previous two years but fell by 3.1% this year.
Construction Output (constant (2005) prices, seasonally adjusted)
Source: Construction: Output & Employment – Office for National Statistics
Comment: It is encouraging that there was a slight quarter on quarter rise in Construction in the last quarter of 2012, but this has to be measured against a 9.3% decrease compared to the final quarter of 2011.
BDO Optimism index for January
• Business confidence in the economic outlook took a hit in December, as the BDO Optimism Index fell back to 90.3 from a previous reading of 91.4.
• Confidence remains on unstable ground, alongside weak domestic demand conditions and a persistently uncertain global economic outlook.
• Although the US reached a temporary agreement on the so-called fiscal cliff of increased taxation and reduced spending, a further decision will be needed in two months. The uncertainty created by this delay is likely to be testing business confidence.
• The Optimism Index continues to stand well below the 95.0 mark that indicates economic expansion. As the Index predicts economic growth in six months’ time, the latest results suggest that 2013 will bring further tough business conditions.
• Ongoing recession in the Eurozone is likely to weigh down on UK growth prospects this year, as the economic area continues to purchase roughly half of UK manufactured goods exports. The latest figures show unemployment in the Eurozone continuing to rise inexorably, which will likely hold back consumer demand for UK goods.
BDO OPTIMISM INDEX 100 = average trend growth. Greater than 95 = positive growth
Comment: With the Optimism Index remaining below the 95.0 mark, it is likely that growth will remain weak over the coming six months.
Optimism stabilises among manufacturers but output still flat – CBI survey
‘There are encouraging signs of stability in overall demand, with domestic orders, export orders and production expected to rise in the quarter ahead.’
– CBI Head of Economic Analysis Anna Leach
Manufacturing orders were flat in the three months to January, while output was stable for the second quarter in a row, the CBI said.
Both orders and output are expected to rise moderately over the next three months, and the employment and investment picture continues to look relatively positive.
Of the 389 manufacturers responding to the latest CBI quarterly Industrial Trends Survey, 25% reported that total new orders had risen, while 28% said they fell. The resulting rounded balance of -4% disappointed expectations of growth (+8%), but the rate of decline in orders was slower than in the previous quarter (-13%).
Comment: Within total orders, export orders continued to fall for the third consecutive quarter (-13% compared with -17% in the previous quarter), against expectations that they would stabilise. However, manufacturers anticipate a resumption of growth in export orders in the coming three months (+7%), underpinning fairly robust expectations for total orders (+14%).
Output growth underperformed against expectations once again and was broadly flat for the second consecutive quarter (-2%). Manufacturers expect to raise output in the next quarter (+8%), although this represents the lowest expectation since October 2011 (-11%).
The January 2013 CBI Industrial Trends Survey was conducted between 15th December and 11th January.
Three surveys from Markit/CIPS, for construction, manufacturing and services:
Markit/CIPS UK Construction PMI®
Construction PMI signals moderate fall in output levels at the start of 2013
Key points:
- Business activity falls for third month running in January
- New orders decline at slowest pace since October 2012
- Business outlook improves since December
Comment: UK construction companies indicated that 2013 started with a moderate reduction in business activity, although the pace of contraction was unchanged since December. This was highlighted by the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI ® ) – which measures overall output in the sector – posting 48.7 in January, unmoved from December’s six-month low. The headline index has registered below the neutral 50.0 value for three months running, and the latest reading was well below the long-run series average (54.1). Lower construction output in January reflected falling volumes of housing and civil engineering activity.
Markit/CIPS UK Manufacturing PMI®
Growth of UK manufacturing production at 16-month high in January
Data collected 11-28 January 2013.
Key points:
- UK Manufacturing PMI at 50.8 in January
- Total new orders rise only slightly as new exports continued to fall
- Input costs and output prices both increase
Comment: UK manufacturing production continued to expand at the start of 2013, following a further increase in new orders and ongoing efforts to clear backlogs of work. The labour market also continued to stabilise following the job losses seen through much of the middle of last year.
At 50.8 in January, edging lower from December’s 15-month high of 51.2, the seasonally adjusted Markit/CIPS Purchasing Manager’s Index® (PMI®)remained above the neutral 50.0 mark for the second month running.
Manufacturing output expanded at the fastest pace since September 2011. This mainly reflected a robust increase in consumer goods production, although output also rose at intermediate goods producers. In contrast, investment goods output fell for the eighth time in the past nine months.
UK service sector records modest growth during January. Data collected 11-29 January
Key Points:
- Stronger demand drives activity and new business up despite poor weather
- Best gain in employment for six months
- Business confidence improved to highest since May 2012
Comment: A return to growth of the UK service sector was signalled at the start of 2013 as volumes of incoming new business increased and companies boosted capacity by adding to their payrolls. Confidence in the future also strengthened, reaching an eight-month high, but margins continued to be squeezed as output charges rose at a considerably slower rate than input costs.
The headline seasonally adjusted Business Activity Index rose back above the 50.0 no change mark in January to signal a return to expansion following December’s first fall in activity for two years. At 51.5, the index was indicative of a modest rise in activity, though still the best since last September.
Despite reports that the heavy snow and severe weather had hampered activity during January, the impact was insufficient to prevent a modest rise in activity and new business following the declines registered in December.
Panellists indicated an underlying improvement in demand, and better market confidence. Sales drives and successful marketing also helped support a solid increase in new business since December.
Summary
The data shows a continued slow down in construction with some semblance of either a slow return to growth, or a reduction in the rate of decline in growth in manufacturing and services.
This slightly ‘less bad’ picture is likely to be on the back of the avoidance of the ‘fiscal cliff’ in America and less concerns of an imminent European meltdown.
I would urge caution here in that the American situation has only been put off for a few months for the political parties to draw breath, and that Europe is still a tinder box, with the next crisis potentially only just around the corner.
It is worth noting that the BDO Optimism Survey points to a continued lack of confidence in the economy.
It is difficult to see where the growth in the UK is coming from when you take into consideration the above factors that are a major influencer of overseas trade, and with our domestic markets constrained by a consumer who is seeing a lessening of spending power with low wage settlements, higher taxation and stubbornly high inflation. This is of course compounded by cuts in government spending on the public sector. In addition, any significant effects of planned infrastructure spending will take a number of years to make a meaningful difference here.
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