Is the Construction Industry in the Doldrums Again?

Is the Construction Industry in the Doldrums Again?

05th April 2016

Despite some optimistic forecasts at the beginning of the year, it looks as if the UK construction industry is looking a little the worse for wear.  With output stagnating and profits dwindling, it looks as if many of the construction companies here in the UK may have to rethink their plans for the coming year.  Statistics show that the construction sector has had its worst performance for 10 months in February with the slowest rise in housebuilding activities since 2013.

According to a survey by Markit, the global financial information and services giant, respondents noted that some clients have been hesitatnt to commit to new projects in 2016.  This is despite the fact that underluying business conditions remain favourable, especially in the commercial building and infrastructure sectors. 

The construction sector had been consistently growing for the past 18 months but optimism began to plummet in September despite the pace of growth in the sector continuing to accelerate.  It was hoped that the sheer pace of expansion signalled by the PMI (Purchasing Managers’ Indices – economic indicators derived from monthly surveys of private sector companies) meant that the construction industry would provide a boost to economic growth.  While housebuilding, commercial property construction and civil engineering looked set to increase, the pace of growth in housebuilding has slowed over the past two months, leading to despondency among building companies across the UK.

Commercial construction seems to have overtaken housing as the busiest sector of the industry while civil engineering activity is the worst performing sub-sector.  A lack of new work to replace completed projects has been a drag on business activity growth and there seems to be a more cautious attitude towards spending among construction industry clietns.  The rate of job creation has also decreased over the past two years and the peak speed of the construction recoverys appears to be over. 

Although construction company resondents to the Markit survey commented on “supportive economic conditions” and rising workloads, some respondents felt that a lack of new work is causing consternation and worry.  Supply chains are undner pressure and supply shortages, long delivery times and a sharp fall in the performance of suppleirs are presenting challenges and look set to continue to do so.  Apparently a strong demand for materials and a lack of spare capacity among suppleirs has resulted in longer delivery times at a time when the construction industry as a whole needs to demonstrate peak performance.

One of the major reasons that building projects are not being started is that the risk has become a lot higher for management.  During the 2008  global economic meltdown, the construction industry here in the UK was hit hard with abandoned projects coupled with spiralling debts.  This is still fresh in the memory of so many that they have become more risk averse and focus mostly on safe bets such as luxury accommodation – affordable accommodation is still not properly catered for despite a burgeoning demand.  Weighing up the pros and cons of any buidign project is still vital in today’s economic climate before investment which has contributed to the lack of confidence that we see today.