As new work from private and public sectors gathers pace, you would be forgiven for thinking that the construction industry is in rude health. The positive upswing in work and employment reported in the latest Construction PMI paints a rosy picture, but how do we reconcile this with the latest ONS data, which reveals a fall in total output by 0.2%, from Quarter 2 to Quarter 3 2015?
Private sector surveys have tended to be more optimistic than official statistics, with the Construction PMI reporting that more than half (59%) of construction firms are forecasting a rise in business activity. Yet the ONS data suggests that chronic issues are bubbling under the surface. Taken together, the two data sets may indicate that the sector is upping its game to meet increasing demand, but still struggling to recover from a prolonged period of stagnation.
When you look at the reality of business experiences, the picture is far from bright for small sub-contractors. Larger construction firms are reducing their reliance on sub-contractors, who are often small and medium sized businesses (SMEs).
Big firms may be looking to find partners capable of operating on a larger scale, but this means smaller sub-contractors often can’t match their offers. The unintended consequence is that smaller players are being pushed out of jobs.
The Construction PMI also showed a deterioration in the performance of suppliers, suggesting that smaller companies may be struggling to maintain high standards, while coping with increased workloads. This problem is exacerbated by the current skills shortage. While large firms are hiring extra staff at the fastest rate for almost a year, small sub-contractors may simply not be able to attract talented staff in the same way – and could find themselves falling behind.
Against the backdrop of increasing demand for construction services, the role of smaller sub-contractors within the industry cannot be overlooked. The Bank of England’s Chief Economist Andy Haldane has described Britain’s housing market as “broken.”
It will remain such if we continue to exclude our SME businesses from the construction revival.
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