It’s Not All Bad News: UK Construction Industry Forecast

Written by  //  March 25, 2013  //  News & Events  //  No comments

The construction industry in the United Kingdom suffered in January, as a fall in available contracts caused construction companies as a group to begin laying off workers in December. Starting in the last month of 2012, the Purchasing Managers’ Index for construction fell to 49.3, suggesting that building projects and revenues were slowing down. Layoffs began in December and fortunes for workers fluctuated in January. Winter has historically been a slow economic period for UK construction, because snow and very wet weather are not conducive to building. The most significant factor was a smaller demand for new projects.

Sliding Downhill And Then The Bump

The beginning of February caused many observers to predict yet another bad month for business and workers. The PMI for January was 48.7. While the change to the Purchasing Managers’ Index might seem small, it has dramatic repercussions for the industry. Whenever businesses decide to cut spending, it is generally workers who end up getting cut. Construction workers who are laid off have the opportunity to return later, but workers who stay in the industry have the absolute best chances of keeping their jobs. Workers least likely to be cut are experienced ones in their thirties or forties. Inexperienced workers and older ones seem to be favourites for ejection, along with troublesome workers who do not appreciate the reality of the job market.

Construction Affects the Entire UK

Construction is watched by analysts for the total health of the economy. It is both highly sensitive to economic fluctuations and it can also hurt the rest of the economy by slowing down. Businesses are the biggest customer for new building, followed by national and county governments. Whenever either sector faces a prolonged slump in revenue, they put off building. This is especially true of government, which feels compelled politically to enact austerity. Construction is also a major consumer of labor and raw materials. Whenever the number of building projects decrease, many other industries are hurt as well. Everything from trucking to equipment manufacturing sees less work.

There Is Hope Ahead

While the UK economy overall seems like a dark cloud, there seems to be a silver lining for the construction industry. The commercial sector has not slowed as much as government spending, because businesses are attempting to gain an edge by exploiting new markets. Many business leaders also project an eventual improvement in the economy, which means that new stores and shops should pay off in the long haul. Whenever revenue for businesses become scarce, their response is often to compete more aggressively or reach to tap new outlets. This behaviour might save UK construction jobs and even rejuvenate the economy as a whole.

Housing and Other Miscellaneous Things

The housing sector will likely remain weak for a few years. Ownership is linked to job availability, and people who are stripped of sufficient income often resort to selling larger homes and moving into less expensive flats. Lower homes prices discourage construction companies from building new ones. House building will likely improve over time after the general economy improves. The short run will see the number of jobs in construction fluctuating, with companies alternating between hiring and layoffs.

Summing It All Up

The next decade should see an eventual return to levels that existed before the recession, since infrastructure and old homes are constantly in need of replacement. Construction as an industry represents about 7 percent of the UK economy, but it impacts many sectors.

Danny Goad has extensive experience in the construction sector. He also enjoys writing about the industry and sharing his insights through blogging. To learn more about building contracts, visit the link.

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