As the UK dips back into recession the focus is on the construction industry, which has had a significant effect on the downturn in our economy. According to the UK’s Office of National Statistics (ONS) the output was considerably worse than the projected -3% with an actual downturn of 5% in the first quarter of 2012, the deepest decline in 11 years.
2012 is the first year which will experience the full impact of the public spending cuts; construction from public sector will fall a further 12%. The onus has been on the private commercial sector to drive recovery, however as funding has become even tighter, this sector has also weakened. Developers are now left relying on the goodwill of their supply chains to share risk.
Forecasts from Experian and CPA indicate an average increase of 2.2% in 2013, however there will be no significant increase in construction activity until at least 2014/2015 but this increase will still not reach pre-recession figures. New work activity figures also suggest a downturn with a 5% fall predicted before a recovery of 2% in 2013.
EC Harris research shows that few banks are willing to lend speculatively therefore holding back many new projects. They have found that developers are looking for alternative funding models which have resulted in an increase in joint venture partnerships.
Tender prices are also forecast to fall due to the economic situation both within and outside of the construction industry. Tender prices nationally are forecast to fall by 2.2% in the year to the 3rd quarter of 2012. As tender prices worsen there is little leeway for contractors due to lower labour rates and falling commodity prices. Sub-contractors meanwhile are eager to maintain workloads and contractors are continuing to drive down prices through their supply chains.
The Markit/CIPS Construction Purchasing Managers’ Index indicates a fall in activity from 56.7 in March to 55.8 in April and 54.4 in May, however any reading over 50 in the index signifies growth. Although the rate if activity has fallen, the construction industry is still performing well despite the general pessimistic view. Markit senior economist Rob Dobson reveals a more optimistic outlook than others; “I think the rate of contraction in the ONS (data) maybe more pessimistic than is really the case. On the ONS data for construction there have been quite large revisions of data in the past,” he said.
There is hope that this summers’ Olympic Games will advertise and showcase what the UK Construction Industry is capable of delivering and create a much needed boost, reigniting a slow but sure recovery.