While the survey evidence is conflicting, the UK construction industry is undoubtedly in a better place than during the difficult years of the recession

Where next for the UK construction industry? Many businesses will have begun 2016 in good spirits, with data showing that most of the sector expected to see activity rising over the year. 2015 appears to have ended on a high, concluded Lloyds Bank construction specialist Max Jones.

Within weeks, however, survey evidence suggested growth in the sector had slowed to its weakest level for nine months. UK construction firms struggled for momentum at the start of this year, with heightened economic uncertainty acting as a brake on new orders and contributing to one of the weakest rises in output levels since the summer of 2013, warned Tim Moore, an economist at

Markit, which monitors activity across every sector of the economy.

SO WHO IS RIGHT?

Will the year ahead bring better times for the construction industry, or is it time to batten down the hatches once more?

To answer that question, it is necessary to look back briefly before considering the future.

There is no doubt that the UK construction industry is now in a better place than during the recessionary years following the global financial crisis. That period saw the public sector cut back on infrastructure spending as:

  • Austerity began to bite and private sector projects were put on hold.
  • Funding from the banking sector was withdrawn as lenders sought to reduce the size of their balance sheets.
  • Costs increased as commodity prices rose sharply.

Since the beginning of 2013, however, sustainable growth has returned to the construction industry.

That perspective is important in framing the debate about future outlook, for the uncertainty now is around the rate of growth that construction can deliver in the months and years ahead; very few analysts anticipate a return to recession.

POSITIVE SIGNS OF GROWTH IN THE UK CONSTRUCTION INDUSTRY

There are certainly grounds for optimism. The Chancellor’s promise of £12bn of infrastructure spending over the next five years will support the sector, as will the increasing determination of policymakers to boost house building. While there are concerns about global economic growth, analysts expect the economy in the UK to grow by around 2.5% during 2016, which will help to sustain increased construction sector activity.

In the longer term, meanwhile, the UK’s improved economic prospects look set to provide further assistance. Indeed, a recent report from Global Construction Perspectives and Oxford Economics forecast that the UK would be the world’s sixth largest construction market by 2030, by which time it would be ‘Europe’s stand-out growth market’.

That is not to suggest there will not be challenges to overcome. Pressure on capital, the prospect of interest rate rises (eventually) and a worrying skills gap all present construction companies with potential headaches. Some of the problems of the recessionary years are still unwinding. The Insolvency Service says the construction industry saw more insolvencies in the final quarter of last year than any other sector.

Moreover, slower-than-expected economic growth could provide further headwinds for construction companies, and the broader outlook remains very uncertain, with that Markit survey report suggesting that some firms are already seeing evidence of a weakening in demand. Still, the UK construction industry’s recovery remains broad-based; output in January rose across every part of the industry, Markit’s survey report showed. Although confidence has weakened, the sector remains more upbeat about its prospects than most other industries, according to the latest data from

Grant Thornton and the Institute of Chartered Accountants in England and Wales and Grant Thornton.

Guarded optimism, in other words, is the order of the day. Overall, construction companies are looking forward to embracing new business opportunities during 2016 and beyond, even if they are proceeding with caution.

TAKEAWAYS:

  • The UK construction industry is unquestionably in a stronger position than it was during the years of the economic downturn.
  • Growth in the industry has been sustained since 2013, and 2015 a mood of optimism marked the end of 2015.
  • So far, 2016 has been marked by uncertainty and conflicting forecasts ? as demand weakens slightly and growth slows down ? but few analysts predict a return to recession.

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Is the Reputation of Your Construction Company in Safe Hands?