RedRock Construction Industry Outlook – September

Hesitancy persists with major projects remaining on hold

Not much change for the industry in stagnant September?

Autumn is approaching

As we head into the Autumn is it possible to detect any hopeful signs of a change to the pessimistic mood which has haunted the construction sector during recent months?

The short answer is  ‘no’ as the broader listless political and economic status quo remains in the UK, with very few people willing to take a firm bet on the chances of the country exiting the EU on 31st October as planned.

Indeed the recent monthly construction output figures from IHS Markit/CIPS caused some alarm in the industry with the sharpest reduction in new work since March 2009 and a decline in business activity for the 4th month in a row.

The index was at 45 in August down very slightly from the 45.3 seen in the previous month. If there is any comfort in this month’s update, it is that there wasn’t a greater drop.

However this keeps the index figure at below 50 for the fourth consecutive month, indicating a contraction in activity.

Feedback from participants indicated poor order books and the general lack of new projects either moving forward or even on the horizon. All three construction categories (commercial, infrastructure and house building) decreased.

Commercial building saw the greatest negative impact, although a chink of positive light was that house building only saw a very slight downturn. Brexit uncertainty was once again cited as the reason for lack of confidence with his situation likely to persist until the way forward is clear.

Good news for employment?

Despite this, employment trends in this month’s update were relatively resilient.

It was noted that there was a marginal drop in staffing levels across the UK, but the reality seems to be that companies are holding onto their skilled staff with reductions being managed by non replacement of voluntary leavers.

In reality, rather than a true downturn, the industry is actually in limbo. Clearly large firms are holding on to skilled staff and hoping that once Brexit is resolved, things will improve with delayed projects starting to move forward.

Good news for infrastructure?

Also featured in the news in September was the new Chancellor, Sajid Javid’s spending review statement which he delivered earlier in the month.

Although much of the detail was drowned out by other political happenings the review did promise an ‘infrastructure revolution’ with a pledge to commit to major investment in the country’s infrastructure with a particular focus on transport and energy efficiency.

The plans were broadly welcomed by the National Infrastructure Commission with a note of caution that a true long term plan must be established to support infrastructure into the future.

It is exactly these sorts of major projects that are currently facing delays so increased activity in this area would be greatly welcomed by construction firms and provide a much needed boost to the industry.

For the time being though, we will wait and see how activity progresses.

How about house building?

One of the major construction sectors is house building so it is always helpful to keep an eye on house prices in the UK as they have a direct impact on demand for new housing.

The most recent survey from the Halifax published in August described house prices in the UK as ‘resilient’ with a 0.3% rise in prices – the second month in a row to see a rise.

In the commentary Halifax said that despite evidence of economic uncertainty having a negative effect on consumer sentiment, house affordability and levels of employment remain positive, so this is continuing to sustain the housing market.

Also, Barratt the UK’s biggest house builder has recently posted an 8.9% rise in pre tax profits to £910m – whilst also warning that 2019 sales are slower than had been expected.

Average selling price dropped and sales in the capital were flat but sales outside of London rose and the company sold a total of 17865 new homes up from 17579 in 2018. 40% of sales had been supported by the government’s ‘Help to Buy’ scheme which is designed to make the property market accessible to first time buyers.

Despite general gloomy sentiment it is positive to see that demand for new housing continues as this will inevitably support activity in this sector of the industry.

Our view

As experts in the construction industry we fully understand the current challenges, but at RedRock we continue to see demand for skilled and qualified construction workers for a range of different projects.

If you are looking for a new role, or are hoping to hire in the near future – get in touch with us today or register online. We will be delighted to help.

 

RedRock Construction Industry Outlook – August

A gloomy mood continues to hang over the industry

Hesitancy persists for many major construction projects and developments

The ongoing lack of resolution to the UK’s Brexit woes is increasing fear that the UK economy as a whole is becoming subdued.

So it is no surprise that our update for construction activity in August reflects the general lack of forward momentum which is paralysing a number of different UK industries.

RedRock Construction Industry Outlook - August

The latest Markit/CIPS Index figures have shown an overall fall in UK construction output for the third month in a row. Both civil engineering and commercial work continued to see a downturn and new orders experienced a notable drop which was attributed to a lack of action across the sector because of Brexit. House building also fell but not by as much as the shock result of last month.

The overall score for the index was 45.3 – better than last month but well off the 50.0 which indicates that the industry is holding steady (or expanding when above that level).

Commentary from Markit indicated that analysts are not anticipating an imminent turnaround, and that a downward trajectory is likely to continue.

The survey also noted that the situation may be exacerbated by the scheduled October VAT changes which will affect the cash flow that some construction firms have available to support new work.

Read our RedRock Construction Industry Outlook - August

Under current rules suppliers are required to account for their own VAT but in a new effort to avoid fraud the government is requiring some firms to make the payment direct to HMRC.

Find out more on the UK Gov website.

Further downbeat news from the UK’s mineral producers

Meanwhile another survey issued in August also points to a creeping slowdown across the industry.

The Mineral Products Association has recently published its own data for the first half of 2019 for the aggregates market; crushed rock, sand, gravel, asphalt and ready-mixed concrete (RMC).

Our views in our RedRock Construction Industry Outlook - August
These raw materials are used by the construction industry across all sectors, so increases or decreases in demand provide a good guide to the level of activity across the board.

Sales volumes of aggregates in the first half of 2019 were 1.9% lower than the same period last year, indicating a reduction in demand for these materials. As the MPA points out – these heavy materials tend to be used in the early stages of construction projects so decreased demand indicates that projects are not getting started.

Only mortar sales, which are more closely linked to house building, saw a rise at 1.4% higher in the first half of the year compared to the same period in 2018. As we have seen in our blogs this year, house building has been the one sector that has bucked the downward trend when compared to the civil engineering and commercial sectors, although this has not been the case over the last two months.

Find out the latest in the RedRock Construction Industry Outlook - August

How are construction firms feeling?

The Guardian has looked at a series of different industry sectors in the UK to see how a possible recession plus the Brexit effect are impacting on day to day commercial activity.

In the construction sector they spoke to a building firm in Sutton in South London which carries out renovations and loft conversions and has 6 office staff and 25 onsite contractors. The article is well worth a read for an on-the-ground perspective. 

How is the industry faring this month? Find out in the RedRock Construction Industry Outlook - August

This company is looking to diversify its activities in order to weather a possible recession but one of their most pressing issues is the uncertainty about European workers’ future status following Brexit. This has led to many of their Eastern European workers returning home – particularly to Poland where the economy is relatively strong.

The lack of clarity over the future status of European construction professionals who want to work in the UK continues to be a problem for the industry which may find it increasingly difficult to recruit skilled workers for a range of construction requirements.

Looking for work or planning to hire quality construction workers?

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