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Alarm bells sound for construction as output plummets

Rising costs and uncertainty relating to Brexit are to blame for the sharp drop in output growth in January 2019, the Federation of Master Builders (FMB) has said in response to the latest PMI data.

The January 2019 PMI data revealed a fall from 52.8 in December to 50.6 in January, against the neutral reading of 50.0. January data pointed to a loss of momentum for the UK construction sector, with business activity growth grinding to its weakest for ten months.

Commenting on the results, Brian Berry Chief Executive of the FMB, said “The latest PMI data shows a slowdown in growth in construction with business activity growth easing to its weakest for ten months. The ongoing political uncertainty is partly to blame for this set-back. Political uncertainty is the enemy of construction firms that rely on the spending power of homeowners to commission home improvement projects. The UK is set to leave the EU next month, and yet we are still none the wiser about what the future holds. Given these intense headwinds, it should not be surprising that the sector suffered such a sharp decline.”

“Alongside the political uncertainty, the cost of doing business is also rising for construction firms up and down the country. Material prices have been rising steadily since the depreciation of sterling following the EU referendum. Looking ahead, material prices are expected to continue to cause a headache for the construction industry with recent research from the FMB showing that 87% of builders believe that material prices will rise in the next six months. What’s more the construction skills crisis means that key trades are extremely difficult to recruit and the upshot of this is rising wages in construction. Tradespeople know they can command higher salaries than they did preciously as workers are scarce, and this means a squeeze in margins for firms. This will only worsen if the post-Brexit immigration system that the Government has planned goes ahead. If the sector isn’t able to draw upon crucial EU workers of all skill levels, who have so far served to mitigate this shortage, the slowdown of growth will continue.”

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Construction set for growth despite Brexit uncertainty

Over 150,000 construction jobs are set to be created over the next five years despite Brexit uncertainty and Carillion’s collapse, a new forecast from the Construction Industry Training Board (CITB) reveals.

  • Infrastructure and housing best performing sectors
  • Carpenters, process managers and professional staff all in demand
  • Commercial sector could be hit by Brexit nervousness

Download the Construction Skills Network UK report for 2018 – 2022 (PDF 1.69 MB)

A massive 15,350 carpenters and 9,350 labourers will be needed as homebuilding ramps up, according to this year’s Construction Skills Network report, the UK’s most comprehensive and up-to-date sector forecast.

However, the strongest job growth will be in a range of professional and managerial roles as the industry seeks to boost its productivity, which will grow by 7.8% and 5.6% over the next five years.

The CSN forecasts average output growth of 1.3%, with 158,000 jobs created. Infrastructure remains the strongest performer with an annual growth of 3.1%. However, housing output, both public and private, is also expected to expand, by 2.8% and 2.2%, respectively. In contrast, the commercial sector is not predicted to grow at all over the next five years, as investors potentially hold back decisions due to Brexit uncertainty.

CSN figures show employment is projected to grow for the fourth consecutive year at 0.5% a year on average to 2022. This would take employment in the industry to 2.77 million in 2022, only 3% below the 2008 peak.

CITB Policy Director Steve Radley said “Despite all the gloom around Carillion and uncertainty from Brexit, our report’s message is that construction will continue to grow and create more jobs.

“Though growth is slightly down on 2017, it’s looking more balanced with housing and infrastructure both expanding significantly. And the range of job opportunities is growing. While we need to bring in lots of people in the trades, the fastest growth will be for professionals at 7.8% and for managers and supervisors at 5.6%.

“By 2022, employment will be in touching distance of the heady 2008 peak so we face a massive recruitment and training challenge, which is likely to get harder after Brexit. So while we can take some comfort from weathering the recent storms, it’s vital that we make the investment in skills today that will shape our own destiny for tomorrow.”

Nations and regions

The report reveals a mixed picture across the devolved nations and English regions. Like last year, Wales continues to perform best with output growth estimated at 4.6% per year. Scotland is likely to remain largely static at 0.1%, with housing growth mitigating a decline in infrastructure from record highs.

Wales’ forecast growth is largely attributable to major infrastructure projects including Wylfa nuclear power stations as well as a series of major road improvements such as the M4 upgrade.

In Northern Ireland, annual growth is down from last year’s 1.6% forecast to 0.5% – this is largely attributable to a slackening of the commercial sector.

In England, the North West and South West lead the growth rankings, both with 2% growth anticipated. The West Midlands is also expected to perform well with an overall average output of 1.8% over the five years. For the remainder of the English regions growth is predicted to range between 1.5% in Greater London to -0.8% in the North East.

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Multi-million package of support for those affected by Carillion liquidation

A further package of support for the businesses and workers affected by Carillion’s liquidation has been welcomed by Business Secretary Greg Clark.

Through delivery partners that include all the major high street lenders, the British Business Bank will provide support to make available up to £100 million of lending to small businesses who may not have the security otherwise needed for conventional bank lending using its Enterprise Finance Guarantee programme.

This will be of benefit to small businesses, including the chain of subcontractors to Carillion, who may not have sufficient assets as security to access conventional loans. These guarantees can be used to support overdraft borrowing and refinancing of existing debt.

The UK’s leading banks have also furthered their commitment to provide support to those affected with UK Finance confirming additional support for personal banking customers concerned about overdraft, mortgage or credit card repayments, as well as further financial support for small businesses to provide short-term relief to help keep them afloat.

Business Secretary Greg Clark said “We want to signal very clearly to small and medium sized businesses who were owed money by Carillion that they will be supported to continue trading.

“The banks have responded to my request by agreeing to support businesses and individuals affected. This further guarantee will help those businesses who may not be able to provide the usual security for a loan.

“I will continue to work closely with business organisations, trade unions and banks to actively support those affected by Carillion’s insolvency.”

British Business Bank CEO Keith Morgan said “The Enterprise Finance Guarantee (EFG) is an important option for smaller businesses who need access to finance, but may not be able to meet a provider’s normal security requirements. To help in these exceptional circumstances, we have designed additional flexibility into EFG that could be particularly suitable for firms in the Carillion supply chain. We would encourage lenders to work with their customers to use these new flexibilities to meet their needs.”

UK Finance Managing Director, Commercial Finance Stephen Pegge said “UK banks are working with government to support customers and businesses who have been impacted by the Carillion liquidation. The enhancement of the Enterprise Finance Guarantee by the British Business Bank will help those facing temporary cash flow issues to access the finance they need to support their businesses through this period.”

This package is in addition to the more than £200 million already announced by Lloyds Banking Group, HSBC and RBS.

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Optimism for construction workloads in the UK

There is optimism for construction workloads in the UK, despite uncertainties around Brexit weighing on investment decisions, and various market constraints, according to the results of the Q4 2017 RICS Construction and Infrastructure Market Survey.

Survey highlights:

  • Only 12% of respondents expressed any confidence in Government strategy succeeding to hit housing target
  • Brexit uncertainties continue to weigh on investment decisions
  • Outlook for workloads and employment growth improves amid ongoing capacity constraints

View and download the survey

Workloads rise

In Q4 2017, 21% more chartered surveyors reported their workloads to have risen despite financial constraints, labour shortages and planning delays remaining key impediments to growth with 80%, 60% and 60% of surveyors reporting difficulties with each, respectively. Comments from some respondents suggest that stricter conditions being placed on firms by financial institutions are limiting growth, which most likely reflects increased caution given cyclical market conditions and Brexit considerations.

The lack of sufficiently skilled workers also remains an obstacle for many businesses, particularly with regard to professional services such as quantity surveying – only in 2007 had the share of contributors highlighting this as a concern been higher.

Also measured in the Q4 2017 survey was an assessment of how contributors feel about the wide range of policies included in the Autumn Budget and Housing White Paper to lift housing delivery to 300,000 units per year. Nationally, only 12% of respondents expressed any confidence in the overall strategy succeeding while the remainder were evenly divided between a lack of confidence or being unsure.

Policies

Looking at specific policies, a £1.1 billion fund to unlock strategic sites, including new settlements and urban regeneration schemes, was viewed by far as the most effective to boost housebuilding (37%). This was followed by lifting Housing Revenue Account borrowing caps for councils in high demand areas (18%) and adding £2.7bn to the Housing Infrastructure Fund (16%).

Despite the constraints that firms have been facing recently, chartered surveyors remain optimistic about the outlook for the year ahead. The RICS survey is forward looking in comparison to official data, and net balances of 48% and 35% of respondents expect workloads and employment levels, respectively, to continue to rise over the coming 12 months.

Pace of growth

Workloads are now reported to be increasing across all geographic regions, particularly in the Midlands and North. Over the past year or two, however, the pace of growth in the infrastructure sector has slowed noticeably in Scotland with surveyors now reporting the first decrease in activity since Q3 2016. This has been somewhat offset by an improvement in workloads in Northern Ireland.

Higher input costs and a shortage of labour continue to restrict growth in profit margins, with a net balance of +12% of respondents expecting a rise in margins over the coming year, unchanged from the previous quarter. This is likely to have impacted tender pricing as well, with 56% more respondents in both the building and civil engineering areas envisaging greater price pressures.

Jeffrey Matsu, RICS Senior Economist said “Activity in the construction and infrastructure sectors continues to expand despite uncertainties related to Brexit and recent market events. While expectations for the year ahead remain positive, surveyors express very limited faith in the government’s national strategy to deliver on its revised housing delivery target. Capacity constraints notwithstanding, the ability of the sector to contribute more sustainably to economic prosperity will depend largely on more coherent policies addressing issues ranging from workforce development to local planning and permissioning.”

Lewis Johnston, RICS Parliamentary Affairs Manager added “with only 12% of respondents confident that the Government’s overall housing strategy is sufficient to meet housebuilding targets, it’s clear more radical action is needed. As we said at the time of the Autumn Budget, the smorgasbord of policies set out by the Chancellor did not amount to the fundamental step-change we need to really shift the dial on housing.

“In practical terms, the Government should go further with the policies respondents felt will be most effective, such as the £1.1 billion fund to unlock strategic sites. In addition to the partial lifting of the Housing Revenue Account borrowing cap, councils should also be given the tools they need to build, including more access to funding and a pipeline of suitable land. The fact that 60% of survey respondents cited labour shortages as a serious constraint to growth underlines to need to tackle skills shortages in construction, and move the sector towards higher-tech, less labour intensive production methods.”

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Construction giant Carillion goes into liquidation

Construction behemoth Carillion have given the shock announcement that they are to go into liquidation, putting thousands of jobs at risk.

Little is known about the details as yet, but according to the statement talks between the firm, lenders and government failed to reach an adequate solution for saving the second biggest construction company in the UK.

The company employs a total of 43,000 people around the world – 20,000 of which are located in the UK. It is not yet clear how these people will be affected, however, government have stated that they will continue to provide funding in order to maintain public services currently run by Carillion.

News of the liquidation will undoubtedly come as a shock to construction professionals, who in recent years have seen the firm involved in major projects such as HS2 and the delivery of schools and prisons. They are also the second biggest supplier of maintenance services to Network Rail, and they maintain 50,000 homes for the Ministry of Defence.

Where did it all go wrong?

In a BBC article, Carillion chairman Philip Green said “This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years.

“In recent days, however, we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision.”

Bernard Jenkin, the Conservative chairman of the House of Commons Public Administration Committee, added “This really shakes public confidence in the ability of the private sector to deliver public services and infrastructure.”

“There needs to be a change in the mindset of many of many of these companies… if you’re actually doing a very substantial amount of business at taxpayers expense for the taxpayer, you’ve got to treat yourself much more as a brand of the public service not as a private company just there to enrich the shareholders and the directors.”

“Ironically, Whitehall tends to do contracts with companies that it always does contracts with, because that’s the safe thing to do – that’s the perception. A great many small and medium-sized companies feel excluded.”

Mick Cash, the general secretary of the Rail, Maritime and Transport (RMT) union, concluded “This is disastrous news for the workforce and disastrous news for transport and public services in Britain.

“RMT will be demanding urgent meetings with Network Rail and the train companies today with the objective of protecting our members jobs and pensions.

“The infrastructure and support works must be immediately taken in house with the workforce protected.”

According to BBC business editor Simon Jack, some of Carillion’s contracts will now be taken on by other firms whilst others could be renationalised once again.

 

More to follow.

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Boosting construction productivity could deliver £15 billion savings every year

New plans set out by the Department for Transport will revolutionise British infrastructure and boost the construction sector’s productivity in a move that could generate savings of £15 billion a year.

The plans were revealed alongside the National Infrastructure and Construction Pipeline, which sets out projects for the next 10 years.

This £600 billion pipeline includes both public and private investment. It will give certainty to industry that there is great appetite to develop infrastructure and will encourage the sector to invest in the right technology and skills to meet this demand.

The Transforming Infrastructure Performance programme sets out how the government will ensure these projects are delivered swiftly and efficiently. It contains ambitious plans to transform infrastructure delivery over the long-term, using the government’s influence to drive modern methods of construction so Britain can lead the world in high-tech building. The Transport Infrastructure Efficiency Strategy sets out how these lessons will be applied to drive efficiency and productivity in transport.

Andrew Jones MP, Exchequer Secretary to the Treasury, said “We are backing Britain with a record amount of infrastructure investment as we build an economy fit for the future. That’s why we’re working with the industry to skill up and scale up for the challenges ahead.

“Investing in infrastructure boosts productivity for the economy as a whole. The scale of the investment we are talking about here will deliver a step change for our country.”

Transport Secretary Chris Grayling said added “We’re undertaking the most ambitious improvements in our transport network this country has seen for decades. But we must also drive forward plans to ensure these infrastructure projects are completed on time and on budget.

“World-leading projects such as Crossrail, the Ordsall Chord and the huge investment programme in our major roads show that Britain can deliver on time and on budget, boosting jobs and growth and creating new opportunities across the nation. But we want to do better. This strategy shows the way and sets out our standards for how we will do more and better in future.”

The government is a major player in construction and delivers many projects every year, such as transport, schools, prisons and hospitals. This accounts for a quarter of all construction projects, and using this purchasing power will enable ministers to drive innovation and encourage firms to invest in modern methods and technology.

Methods such as off-site manufacturing, where projects are part-constructed before being assembled on location, can boost productivity by reducing waste by 90% and speed up delivery times by more than half (60%). For example, a school that typically takes a year to build could be done in just over 4 months.

The announcements tackle this head on and give the sector the certainty to start investing in the right technology and skills.

Tony Meggs, Chief Executive of the Infrastructure and Projects Authority (IPA), said “Publishing our Transforming Infrastructure Performance (TIP) programme demonstrates our commitment to tackling the annual £15 billion productivity gap in construction. The IPA has a significant role to play in helping to create a more productive and innovative sector.

“We want to maintain confidence in the sector and will work alongside industry, using our purchasing power to drive the adoption of modern methods of construction in both new and existing infrastructure. The scale of ambition is great but by aligning our initiatives we can work with industry to deliver transformation for the sector.”

Andrew Wolstenholme, Co-Chair of the Construction Leadership Council (CLC), said “The Transforming Infrastructure Performance programme presents a huge opportunity for the industry and government to reap the economic gains from improving productivity during the delivery of the UK’s £600 billion infrastructure pipeline. Transport is a huge part of that.

“I am delighted that the IPA, DfT and CLC are working closely to encourage construction clients to procure on the basis of whole life value, deliver more industry led innovation, develop the skills we need for the future and give the UK a competitive advantage in exporting new technologies and expertise. I am proud to chair the Transport Infrastructure Efficiency Taskforce which will ensure these strategies are brought to life across the transport sector.

“It all adds up to better economic and social infrastructure, as well as more homes, delivered quicker, at better value and more sustainably than ever before, underpinning the UK’s growth and providing jobs all over the UK.”

 

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Construction project starts forecast to steady in 2018

Glenigan expects the value of construction starts to stabilise in 2018, after the declines seen over the last two years, as construction clients adapt their investment plans to the changing political and economic environment.

Commenting on the prospects for the industry, Glenigan’s Economics Director, Allan Wilén said “The value of underlying construction projects has fallen back this year amid continued political and economic uncertainty, delays to public sector projects and a weakening in housing market activity.”

“Whilst a weak UK economy is forecast to constrain construction activity over the coming year, we anticipate greater stability in overall construction starts as strong growth in hotel and leisure, industrial and education work help offsets weakness elsewhere.”

“The industrial sector is forecast to be a growth area as technological and social changes reshape consumers’ retail habits and drive the demand for logistics space. We expect these structural changes to be a long term driver for warehousing and logistics projects as online retailing takes an ever larger share of retail sales and as retailers adapt to changing spending patterns and shopping habits. The Midlands, North West and parts of the South East of England are favoured locations for such facilities, offering good access to national transport networks and the UK’s major population centres.”

“The hotel & leisure is also forecast to be a growth sector over the coming year. Consumer spending on leisure activities remains firm and the sector is benefiting from the depreciation in the pound over the last two years which has boosted UK tourism and encouraged UK consumers to holiday at home.”

“Demographic changes are set to shape the pattern of construction activity. Increased investment is anticipated to expand the secondary school estate in order to accommodate rising pupil numbers, especially in the UK’s major conurbations. In addition universities are investing in new facilities as they compete for UK and overseas students.”
“Growth in these areas will help offset weakness in the private housing and office sectors.”

“Real household earnings growth has stalled due to weak wage growth and higher inflation. This is forecast to slow housing market activity, with weak new house sales holding back sector activity. The value of private housing projects starting on site is forecast to drop 3% next year as housebuilders prioritise building out current developments and open fewer sites.”

“Political and economic concerns arising from the EU referendum depressed office project starts during 2016 and 2017. These concerns are expected to persist as investors appraise the implications of Brexit and of slower UK economic growth for the demand for office space and rental values. Developments in the City of London and Docklands will be especially vulnerable with weaker demand for accommodation as financial institutions consider relocating operations to elsewhere within the EU.”

“Major infrastructure schemes, including, Thames Tideway, HS2 and Hinckley Point, are forecast to drive civil engineering activity next year. The value of smaller scale projects starting on site have fallen back sharply this year and are expected to weaken further in 2018 as investment is dominated by flagship projects.”

GLENIGAN

A full copy of the Glenigan Outlook Forecast is available to download here.

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Industry must rise to meet UK economy growth

Industry must rise to meet UK economy growth

The UK’s economy had higher than expected growth in the three months to September, reveals the latest figures from the Office of National Statistics released today.

According to the ONS, gross domestic product (GDP) for the quarter rose by 0.4%, compared with 0.3% in each of 2017’s first two quarters.

Services and manufacturing industries grew during the period. Industrial production rose in July and August but construction output fell.

The financial markets are now indicating an 84% probability that rates will rise from their current record low of 0.25% when the Bank of England’s Monetary Policy Committee (MPC) meets on 2 November.

Construction is crucial

Construction output in the UK is currently more than £110 billion per annum and contributes 7% of GDP. Approximately 60% of construction output is new build, whilst 40% is refurbishment and maintenance.

The industry accounts for approximately 3 million jobs, 10% of total UK employment and includes both manufacturing and services.

Construction is a high cost, high risk, long-term activity, and so it’s performance is a good indicator of the health of the wider economy. When the economy falters, construction investment often grinds to a halt. However, today’s announcement suggests that our economy is beginning to recover after a tumultuous time post-Brexit. It is imperative that the construction industry recieves the support it needs from government to help continue this upward momentum.

What do you think the industry needs from Government? Let us know in the comments section below, or reach out to us on twitter @BuildSpecifier
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Construction industry forecasts good news for UK contractors and manufacturers

Construction Industry Forecasts for 2017 to 2019 estimate an overall rise of 7.4% for new-build infrastructure in the UK this year, with a continuation of 6.4% next year. It’s news that bodes equally well for leading suppliers of concrete repair and protection solutions such as Sika, as an increase in new buildings will inevitably lead to defects in newly-poured concrete requiring onsite attention.

So, what is this positive outlook for the country’s new building output based upon? Well, a number of factors across a number of key infrastructural sectors appear to be driving the optimism. Forecasts for the harbours and waterways sector are particularly encouraging, with year-on-year growth predicted thanks to huge waterside projects planned across the country in the coming years.

There’s the Aberdeen Harbour Expansion project for example. Commencing in September this year, the £350 million scheme – due to be completed in 2020 – will see the existing site expanded to include a facility for oil industry decommissioning work. Other upcoming UK harbour projects include a £135 million redevelopment of the port of Dover, and a £10 million project to build a new link-span bridge at the Port of Heysham in Lancashire.

Water spend

Upgrades in water treatment works are also continuing nationwide as part of Asset Management Period 6 which runs from 2015 to 2020. Water firms will have spent more than £44 billion in that time on improvement works agreed by water industry regulator, Ofwat, that include the Severn Trent Water’s Birmingham Resilience project, Wessex Water’s integrated supply grid, and the modernisation of United Utilities’ Davyhulme wastewater treatment plant. Work on London’s £4.2 billion Thames Tideway Tunnel project, which is being financed and delivered by an independent provider, is also boosting construction in this sector.

Spending on road maintenance is also expected to rise. Highways England has a maintenance budget of £1.3 billion over its first fixed five-year investment period, which began in 2015/16. In 2017/18, expenditure on maintenance is set to increase to £258 million, from the £254 million allocated for 2016/17.

Thereafter, it is expected to increase in 2018/19, before slowing in 2019/20. However, 97% of the roads network is governed by local authorities, which are financially-constrained due to cuts in central government funding since 2010. Whatever monetary restrictions councils face there is little doubt the condition of the country’s roads require urgent address, as an Annual Local Authority Road Maintenance Survey (ALARM) report revealed a 13-year backlog of local roads maintenance in England.

Energy drive

Infrastructure repair and maintenance is also expected to increase in order to maintain the country’s energy provision. With a delay in the building of nuclear power stations, National Grid announced it would be retaining the services of existing power plants initially earmarked for closure. Structural maintenance is likely to be required to extend the lifespan of the plants which will be held in reserve to boost electricity supplies if and when required.

Construction Industry Forecasts – headline figures for 2017 to 2019

  • Construction output to grow by 1.6% in 2017 and 0.7% in 2018
  • Private housing starts to rise by 3.0% in 2017 and 2.0% in 2018
  • Infrastructure construction to grow by 7.4% in 2017 and 6.4% in 2018

Construction Industry Forecasts for public housing repair, maintenance and improvement is a little less encouraging, with output in this sector expected to remain flat in 2017 and 2018, whilst commercial offices output is expected to fall by 1% and 12% during the same period. However, prospects for the builders of the nation’s infrastructure, and the contractors and manufacturing firms required to maintain it remain distinctly good. It would seem the UK is building towards a brighter future.

For more information click here.

By Charles Pierce, National Sales Manager – TM Refurbishment

Charles Pierce

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Construction bounces back after a recent stall in growth

After a torrid month in May for construction, figures began to move in the right direction across June, with contract awards increasing by twelve per-cent, as a number of high profile projects were given the green light.

The latest edition of the Economic & Construction Market Review from industry analysts Barbour ABI, highlights the levels of construction contract values awarded in June across all regions of Great Britain, which totalled £5.5 billion based on a three-month rolling average, an increase on the £4.9bn from May.

London led all regions with 26 per cent of the total construction contract value for June. This was greatly helped by the North Quay Poplar development contract award, worth £800 million, the
largest project across all of construction on the month.

Across the various construction sectors, it was Residential building that produced the highest value on the month, reaching £2.5 billion, bouncing back admirably after a dip in May when it decreased to £1.7 billion. Furthermore, four of the top ten biggest projects in June came from the Residential sector. There were also monthly increases in Industrial, Commercial & Retail and Medical & Healthcare. The largest decrease came from Infrastructure, which lacked a high value project on the month to help increase its figures.

Looking at construction in June across the UK regions outside of London, the dominance continued across southern England with the South East in second place for construction contract value with £713 million awarded, followed by the South West in joint third place with the North West, each tied at £627 million.

Commenting on the figures, Lead Economist at Barbour ABI Michael Dall said “The construction sector bounced back after an election-focused month in May, as the residential sector once again performed strongly, continuing the trend of it holding the construction sector steady. However with declines in value from Hotel, Leisure & Sport and in particular Infrastructure, there is continuous pressure on Residential to achieve high values every month.”

“With the Governments increasing focus on raising the levels of major infrastructure projects, it’s surprising to see a lack of development in this sector across June. The anticipation however, is that we will see larger public sector contracts come to the forefront, such as offshore wind farms, energy plants and motorway upgrades as we continue into 2017.”

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