Political Uncertainty Could Prolong Construction Recession

Overall construction activty in the UK contracted for the seventh consecutive quarter in 2010 Q1, according to the latest Construction Trade Survey published today, and industry experts expressed concern that political uncertainty could prolong the recession in the industry. Key results in the survey showed that enquiries remain subdued and order books depressed, and with pressure on raw materials prices continuing to strengthen, the industry expects operating conditions to deteriorate further as 2010 progresses. A negative balance of 24% of construction product manufacturers and suppliers saw a fall in sales compared with a year earlier. Particulalry badly hit were manufacturers and suppliers of heavyside products where 75% of heavyside firms reported lower sales volumes,  not helped by the adverse weather at the start of the year. In contrast those making lightside products saw an improvement in trading conditions as firms started to re-stock. Looking forward, the survey showed something of an improvement in manufacturers’ optimism about future short-term trading conditions, but 50% of firms still expect sales to decline in Q2, slightly more than the 45% than expect to see improvement. Commenting on the results of the survey, Construction Products Association Chief Executive, Michael Ankers said; ‘It is going to take some time to come to terms with the way the new government will work and how stable the relationships that are being established are. This uncertainty could delay the investment decisions in both the public and private sectors, and prolong the construction recession beyond 2010. Manufacturers and suppliers need confidence that the recovery in the housing market will continue and clarity about public sector spending programmes going forward. Without this, future investment decisions by companies in the industry will inevitably be put on hold’. Building contractors also reported falls in output in the first quarter of 2010 with, on balance, 25% seeing ouput lower than the same quarter in 2009. Of particular concern was that over 50% of contractors stated that orders for work in publicly funded projects such as health and education had declined in the first quarter of the year as a result of a hiatus on the letting of public sector projects in advance of the Election. Commenting on the survey Stephen Ratcliffe, Director of the UK Contractors Group said: ‘The outlook for the industry remains at best uncertain.   A big worry is that the inconclusive election result  will have an effect on both public sector investment, with more delays and uncertainty, and the wider market because ongoing fiscal policy could be a muddle.  Rising costs do not help with everybody under pressure, because of the state of the economy, to deliver projects at significantly reduced costs.’ Julia Evans, Chief Executive of the National Federation of Builders added: ‘With the construction industry still in recession and continuing to experience higher costs and less work, deep capital spending cuts can only make it more difficult to develop skills and deliver on low carbon building targets. It is important to note that none of the major parties pledged to protect construction spending during the election campaign, a sure sign that the industry’s contribution to the UK economy is still undervalued.’  Key survey findings are: – 78% of light side manufacturers reported an increase in sales in 2010 Q1 compared to 2009 Q1, but sales volumes were down for 75% of heavy side manufacturers.
– Sentiment about the future, whilst still negative, has improved since the last survey. 40% of light side manufacturers and 38% of heavy side manufacturers expect sales to rise quarter-on-quarter in 2010 Q2.
– Inflationary pressures persist. 80% of light side and 37% of heavy side manufacturers reported a rise in unit costs in 2010 Q1, with raw materials and fuel/energy costs being the main drivers. Employment levels and wages, however, continued to fall.
– Sterling’s persistent weakness has increased UK manufacturers’ competitiveness overseas and 72% of light side and 20% of heavy side reported further increases in exports in 2010 Q1.
– Building contractors saw particularly sharp falls in the industrial and commercial sectors and the prospects going forward in these areas are also disappointing, with new orders in 2009 falling by 38% and 45% respectively.
– Contractors also saw a continued fall in enquiries during Q1, although the fall in commercial orders (42%) was smaller than the 75% experienced in the final quarter of 2009.
– Despite the falling workloads, more contractors reporting increasing costs and they attibuted this to rising material prices.