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News » UK » Not much Olympic feel-good factor for construction » published 06/08/2012

Not much Olympic feel-good factor for construction

There is still no sign of private sector recovery to offset public sector cuts, the latest industry survey indicates, with only specialist contractors having anything to cheer.

The latest Construction Trade Survey, published today, shows that construction suffered another sharp fall across all parts of the industry during the second quarter of 2012. Current workloads, new orders and tender prices all declined, adding to the continuing woes and growing uncertainty for the UK economy as a whole.

As public sector investment continued to decline, in line with the government’s budget deficit reduction objective, there was no sign of any private sector recovery to offset these cuts, leaving the sector with very little optimism for recovery in the near future, according to the associations behind the survey.

Only the specialist contractors' sector is seeing any growth (see below). Otherwise, it was pretty grim all round.

National Federation of Builders chief executive Julia Evans said: “The country is basking in the feel good factor of the Olympics, which aims to inspire a generation. However, with higher costs, rising numbers of insolvencies, falling output, lower demand and rapidly depleting skills the construction industry is in danger of losing an entire generation of talent. While investment in infrastructure may deliver results in the medium-term, the government must ensure that its latest Funding for Lending scheme provides the near-term boost that will fuel growth.”

Key survey findings include:

•           Large and medium sized building contractors reported that output in the second quarter of 2012 was lower than during the first quarter of 2011, which in turn was lower than Q4 and output has fallen in four of the last five quarters.

•           Building contractors continue to report that order books are falling. The overall orders balance stood at –25% in the first quarter and deteriorated to –50% in Q2.

•           In 2012 Q2 30% of building contractors, on balance, reported rises in costs.

•           In 2012 Q1, nearly a third of firms, on balance, reported that profit margins reduced yet this had increased to almost half of all firms, 49% on balance, by 2012 Q2.

•           45% of heavy side firms reported that sales fell between Q1 and Q2. However, 20% of light side firms, on balance, reported that sales rose between the first and second quarters of 2012.

•           6% of heavy side manufacturers, on balance, reduced headcount in the year to Q2. 8% of light side firms, on balance, increased employment over the same period. However, employment remained static for the vast majority of firms.

•           45% of heavy side manufacturers and 73% of light side manufacturers invested in product improvement.

Construction Products Association economics director Noble Francis said:  “The position for construction in the UK is now looking very bleak indeed, as this is the fourth such fall in the past five quarters. This survey brings together the position from all parts of the construction supply chain and the fact that these findings are reflected throughout the industry should send a stark message to the government that the current situation is really beginning to hurt. The government has rightly recognised that construction is a key driver for economic recovery. Therefore, government emphasis must be focused on immediate construction work throughout the country, much of which has already been identified. But this will require actual investment to replace the rhetoric that has, of late been all prevalent.”

UK Contractors Group director Stephen Ratcliffe added: “Declining public sector spend and a lack of confidence amongst private investors, means action is urgently needed to kick-start the construction economy. UKCG is working with government to help speed-up decisions on school building and other major projects, and ensure capital investment benefits all parts of the UK – not just London and the southeast.

“Recent announcements on infrastructure guarantees and rail investment have been welcome, but we also need ‘shovels in the ground’ today. More resources could be directed to social housing and repair and maintenance projects – these are labour intensive and can be got off the ground very quickly.”

 

Specialist on the rise

Specialist contractors are experiencing an increase in activity according to the latest state of trade survey by the National Specialist Contractors Council (NSCC)

Some 44% of respondents reported a growth in orders in the second quarter of 2012, an increase of 14% over the last two quarters. With 61% now working at over 75% capacity, it suggests a gradual recovery could be on the horizon, which is encouraging news in the face of the figures reported by the Office of National Statistics last month showing that construction output had fallen by 5.2%.

NSCC contributes its findings to the wider Construction Trade Survey reported on above.

According to the NSCC, there is continued short-term optimism in the specialist sector with 40% of respondents expecting an increase in workload, up from 30% in the previous quarter, and 27% looking to expand their businesses over the next three months.

A member of the Painting & Decorating Association (PDA) confirmed that “there is business out there but everyone is very careful in what they are spending.” The longer term remains uncertain with the majority of specialists still planning less than three months ahead. 32% also reported a decrease in enquiries this quarter, which is likely to have an impact on the number of orders received in the next quarter and may undermine the recent improvement.

Following the government’s decision in December 2010 to make 30-day payment throughout the supply chain a contractual requirement on central government contracts, 44% of specialist contractors are now receiving payment within 30 days on public sector works, compared to 26% in 2011 Q1.

NSCC chief executive Suzannah Nichol said: “This quarter’s results suggest that things could be starting to improve and government investment is very much needed to help the sector maintain its role as one of the main engines of future economic growth.”

MPU

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This article was published on 06/08/2012 (last updated on 16/08/2012).

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