The UK’s construction sector is in dire need of investment. While the IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) jumped up by 2.7 points from 48.1 to 50.8 in September, the reading is still the second-weakest since July 2016.
High import costs and a lack of investment due to political uncertainty are hindering growth for the UK’s construction industry. The PMI is usually a reliable guide to economic growth, and this most recent score suggests raising borrowing costs with a rate rise is a mistake.
If the fortunes of the construction industry are to be turned around in the long-term, the Government needs to lead by example and invest. It is fair to say that infrastructure in the UK’s regions is in need of rejuvenation, and we would argue the Northern Powerhouse and Midlands Engine initiatives are perfectly placed to drive that.
The Northern Powerhouse and Midlands Engine initiatives were two hallmarks of the Cameron-Osborne Government, both intended to create a more balanced economy by driving regional growth. However, the initiatives have been characterised by stop-start progress, hampered by political change brought about by the EU referendum and general elections in 2015 and 2017.
It has been a tough year for the industry, with a number of large infrastructure projects around the country having come to a close, and there has been a decline in commercial office building. These trends emphasise the importance of investment. To that end, it’s vital that plans to improve connectivity links throughout the North start to take effect soon. Not only because public transport connections between cities in the North West, throughout Yorkshire and Humber, and the North East are poor, but because these are the big infrastructure projects that will keep the construction industry in the black. The North and Midlands are also littered with brownfield land – there is more than 1,600 hectares of brownfields land in the West Midlands alone – prime for both commercial and residential development.
Yet according to data from our Q2 2017 SME Confidence Tracker, businesses in the construction sector are the least aware of the Northern Powerhouse and Midlands Engine. Half of the sector’s SMEs (50%) have never heard of the Northern Powerhouse, and 72% have never heard of the Midlands Engine.
The Chancellor will be in a tricky position on 22nd November when he announces his budget. He must look to favourable investment to avoid key industries falling into recession, and industry is one of those key industries which the Government must support.
An analysis by the Office for National Statistics (ONS) recently showed that between 1997 and Q2 2017 the UK spent the lowest proportion of national income on investment of any developed economy. This must change. We urge the Chancellor to turn the tide, lead by example, and invest for the benefit of UK businesses.