Construction Industry Outlook – Doom and Gloom?
In last week’s News Roundup for the month of April we reported on the fact that the adverse weather in March dubbed the Beast from the East resulted in a slump in housebuilding with an overall decrease of 1.6% as widespread snowfall closed building sites across the UK. However, it’s not all doom and gloom, as recent news reveals that the construction industry showed a healthy bounce back throughout April after March’s sharp drop. The latest health check for UK construction activity shows a much more positive outlook despite the demand for new buildings remaining subdued.
Whilst this recovery was better than expected, industry experts disclose that it hasn’t been enough to revive expectations that the Bank of England will raise interest rates this week. The Purchasing Managers’ Indexes (PMIs) are economic indicators compiled using the data from monthly surveys of private sector companies. The PMI for April showed a reading of 52.5, an increase over March’s score of 47 – on a reading where the 50 mark separates growth from contraction. The expected reading for April was 50.5, so the increase represents a better than expected recovery.
The economic uncertainty we face here in the UK as Brexit approaches has created a risk-averse mood among clients which has led to a less than positive outlook, particularly in the areas of commercial building and civil engineering projects. The PMIs for commercial and civil engineering activity rose to 51.2 and 51.5 respectively, an increase from 46.4 and 43.6 in March. Long investment time scopes for commercial and civil engineering projects mean that both these areas are likely to remain depressed until clarity emerges over the UK’s long term relationship with the European Union.
Moreover, the construction industry is likely to suffer from a planned 5.4% year over year reduction in public sector gross investment, meaning that a true recovery for the construction sector may not be attained for quite some time. With recent reports of a millennial housing crisis in Britain, the outlook is pretty pessimistic. Home ownership by young families has decreased significantly throughout the UK in recent years. Statistics show that the proportion of families headed by a 25 – 34 year old that own their own home has more than halved in some regions, with the crisis hitting families across the UK and not just in London where property prices are typically higher than elsewhere.
However things pan out in the future, there will always be a need for construction, whether this is in the form of new buildings or the refurbishment of existing buildings, the fact remains that everybody needs a roof over their head so the future of the construction industry here in the UK is safe, despite forecasts of doom and gloom. The challenge for construction company owners and managers will be to find innovative ways of staying in business while we wait for improvements and stability within the general economy.