The current situation and state of the UK construction industry seems to be quite difficult to accurately define at present. For some time now, we have faced the worst economic conditions for a generation. Further pressure to produce savings and fit into the latest austerity measures as defined by both government and private organisations have increased operational difficulties for the majority of operators.
The initial impact of the recent comprehensive spending review appeared as somewhat of a double-edged sword. We were told that a number of (transport) projects would be protected and were to proceed as planned. £10bn would still go to funding road networks and transport schemes… however, local level capital spending was to be cut by a further 30% over four years.
In social housing, the plans to improve and regenerate would be accelerated with the allocation of some £2bn towards the decent homes initiative. At the same time, the funding for social housing build was to be slashed.
The prison service would benefit from £1.3bn of spending to maintain and refurbish existing prisons, but would see the new prison building plans shelved.
Schools would have £15.8bn spend to improve up to 600 existing schools. Of course, the BSF programme was already scrapped to reduce overall capital spending by 60%.
Clear as mud?
The following week, we would have been pleased to learn that the construction industry has infact “had an extraordinary year” (BBC Business news, 26/10/10). Due to the fact that the construction industry had been one of the biggest losers as a result of the recession, the only way was up, and this had apparently seen the industry experience strong growth of 11%, with 9.5% growth being achieved in Q3 alone! So great was the strength of the industry, that it had the effect of boosting overall GDP figures… didn’t it?
If these numbers were correct, we could expect to have similar levels of construction activity as we experienced in around 2007, where firms could barely cover the amount of build required. Clearly this is not the case today.
The latest predictions form economic experts, Hewes & Associates, suggest that construction could be set to see a significant fall in output over the next two years (http://hewes-associates.com/index.php?option=com_content&task=blogcategory&id=5&Itemid=21). The value of output expected by 2012 could be around 22% lower than that of 2008, with private housing levels remaining roughly half of the levels achieved in 2007 at the sector’s peak.
So where are we now and where are we going? Could it be anybody’s guess? It seems that there is an expectation for the slack in construction investment to be taken up by private bodies, while the government focuses on maximising spending reductions and budget cuts.
Supermarket spending has been impressive with considerable investment in upgrading existing stock as well as financing new builds. Private housing also seems set for growth, providing individuals can both secure financing and commit to the expenditure. Which takes us nicely back to the banks…