RedRock Construction Industry Outlook – July 2019

Negative news overshadows the industry in July

The risk averse sector is too nervous to move ahead with major projects

A general slowdown in the UK economy and the ongoing lack of resolution over the nation’s Brexit situation has led to the worst drop in construction output seen by the industry in a decade.

As regular readers will know, general sentiment over recent months has been far from positive with lots of companies taking a ‘wait and see’ attitude to projects – particularly major expensive ones.

Many commentators have been on tenterhooks for a while, wondering when those feelings of ‘uncertainty’ might tip over into ‘negativity’. This is the month where that seems to have finally happened.

The July IHS Markit/CIPS Construction Purchasing Managers Index belly flopped to 43.1- considerably below the 49.3 figure that had been predicted by analysts and providing a stark reminder of the profound uneasiness of the sector in our current Brexit limbo.

As we have discussed before, a figure below 50 shows a contraction in the industry and not only was this month’s figure well below that, but it was also at the lowest level that had been seen since April 2009 and the depths of the financial crisis.

Respondents reported that clients were unsure about proceeding with major projects which is hardly a surprise under current circumstances. The drop was experienced in both business activity and reports of new work.

In previous months the commercial and civil engineering sectors had been most affected but this month the gloom has also spread to housebuilding with negative figures reported across the whole industry.

Activity in housebuilding saw a drop for the first time in over a year and it was the largest drop in activity for three years. Commercial work remained the weakest area overall, with a fall for the sixth consecutive month.

 

According to an article in the Guardian the combination of no clear way forward and the growing possibilities of either a Labour victory in a snap autumn general election or a no deal Brexit was keeping major infrastructure projects on hold.

More positive news on staff retention

The demand for construction staff remained stable which is good news. This may reflect the industry’s hope that this period is a blip and we can look forward to more certainty soon. Although business optimism is subdued respondents did report that they are holding on to their staff whilst looking forward to things improving. Few layoffs were reported with companies not replacing workers who had left, but retaining the skilled people already in place.

Will the new Prime Minister make a difference?

Will our new PM, Boris Johnson be able to really make a difference to sentiment across the sector? The reality is that we can’t yet be sure. He has indicated his intention for the country to leave the EU on 31st October so this can raise the stakes on a no deal Brexit but at the same time he is committed to getting an agreeable deal into place with the EU. It is also a case of ‘wait and see’ for some UK infrastructure projects from the new PM who has taken an equivocal stance on both HS2 and Heathrow expansion during his campaign.

 

Hopefully things will be clearer soon – but for the time being at least, the uncertainty is likely to remain.

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