UK Construction Product Sales Strengthen in Last Quarter of 2006

Construction product sales volumes have strengthened during the last three months, broadly in line with manufacturers’ expectations. The Ernst & Young/Construction Products Association Activity Barometer recorded a score of 67, firmly above the 50 ‘no change’ mark. The survey findings highlight a continued recovery in construction activity after 2005's fall in output and the disappointing first half to 2006.

Commenting on the results of the survey, the Construction Products Association’s Economics Director, Allan Wilén said: “The survey reveals a continued recovery in construction activity during the closing months of the year. The index of light side product sales, at a reading of 79, is particularly strong and reflects the strength of the office construction sector and continued Government investment in education facilities. Recent changes to the building regulations are also contributing to higher, light side sales for energy saving products. However, manufacturers supplying products to private new housing and the home improvement market, report that sector activity remains subdued.

“Heavy side firms report a more muted recovery, with an index reading of 56. This is against weak sales during the closing months of 2005. Infrastructure output remains lacklustre and there is continued industry concern at the slow progress of road construction and maintenance work where volumes have also been adversely affected by the sharp rise in the cost of energy and petroleum based products.”

Wilén continued: “Looking ahead the industry anticipates a further strengthening in construction activity during the first quarter of 2007. However, the division between light and heavy side manufacturers remains, with light side firms especially positive. We anticipate that industry growth will gather momentum during the course of 2007, benefiting from an increase in private sector investment. In contrast tighter public sector finances are set to limit the recovery in government funded work.”

Dom McAra, Director in Ernst & Young’s Building Products team commented: “These findings reflect what our clients have been telling us – that there has been price pressure on a number of heavy side product offerings. But this pressure, as the statistics show, is clearly starting to level off, which is encouraging.

"The light side results are particularly positive - reflecting confidence in light side businesses. However, providers of social housing are struggling as tighter Government spending limits funds for refurbishment work and there are concerns that this will continue into 2007. Suppliers that sell direct to the consumer have also shown a decline in confidence, following the recent interest rate hike. The prospect of a further rate rise in early 2007 has also started to feed.

"The second half of 2006 was dominated by M&A activity in the construction sector and we expect this to continue well into 2007 - with more inward investment expected into the UK from Europe.”

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