The latest batch of construction sector data paints a fairly bleak picture for the industry. At the end of April we heard that output in construction had contracted by 0.9% in the first quarter; meanwhile the latest Construction PMI showed that the industry suffered its worst month since June 2013. Other data also indicate that activity in the private housing sector is rising at its slowest pace since 2013.
But despite this downcast outlook, our own SME Confidence Tracker for Q1 told a more positive story. Almost half (49%) of the construction SMEs we spoke with had experienced an increase in new business in previous months. Looking ahead, over half (52%) are expecting sales to increase, up from a third (34%) at the end of 2015.
So why the mixed picture and what does this mean for the construction industry and the SMEs operating within it?
One possible explanation is the industry lag between large construction companies and main contractors taking on new contracts, and SMEs and sub-contractors further down the supply-chain being engaged. Whether it’s a new 400 unit housing development or a new lane on the M25, big contracts are awarded to big business. But once work commences, it’s here that smaller sub-contractors begin to benefit.
A key driver is keeping the industry going is the line-up of government-led infrastructure projects on the horizon, with the Northern Powerhouse developing a strong pipeline of work in the North.
One business with insight into the state of the industry is Spectrum Contracting Services, a recruitment agency dedicated to the construction and rail industries. Spectrum is seeing high demand for specialist and skilled workers, with the business aiming to have over 1,000 construction and rail workers on site by July. However, the business has also seen the build-up of an impending skills gap, particularly with bricklayers and machine operators, which could impact the industry’s ability to deliver on projects. This is particularly true for the housing industry and calls into question the ability to meet the government’s target of 200,000 new starter homes by 2020.
So while the SME sector appears to be in a good place, the outlook for the coming months looks uncertain. In addition to a delayed housing bill and the growing skills gap, one thing holding back the construction industry has been the uncertainty around the UK’s relationship with the EU. This uncertainty appears to have created a drag on the sector with businesses holding back on committing to new projects.
It is clear that growth in the industry is set to be sluggish over the coming months especially where private investment is concerned. However, there is a pipeline of infrastructure projects that could breathe new life back into the industry. With around five weeks to go, the UK economy and the construction industry will soon know the answer to the EU question. Whichever way the vote goes, the industry will quickly need some fresh impetuous to get things moving again.
To find out how we’re supporting the construction sector, visit www.bibbyfinancialservices.com.