UK construction market pessimism

The impact of UK government spending cuts and continued concerns over access to finance saw sentiment in the construction industry turn increasingly negative during the third quarter of 2010, according to the latest UK Construction Market Survey from RICS (the Royal Institution of Chartered Surveyors).

It found that 59% of chartered surveyors reported there had been no movement in construction workloads during the quarter.

Of those who did see an adjustment, it was downwards, with 10% more surveyors reporting that workloads fell rather than increased.

Insufficient funding for new developments and continued concerns over the economy were among the factors cited as affecting construction projects.

Significantly, surveyor sentiment was negative for all sectors of the construction industry. RICS said it was perhaps unsurprising in light of government spending cuts, that the worst affected areas were public housing and other public works, with negative net balances of -32 and -23 respectively.

Sentiment over public housing workloads is now at its lowest level since the survey began in 1994.

Across the UK, all regions reported negative net balances in the third quarter. Northern Ireland recorded the largest deterioration in workloads, with the net balance at -63. Scotland also experienced sharp declines in workloads, as did Wales and the south west of England.

The overall outlook for the coming year also worsened, with surveyors reporting output expectations falling at a faster rate than projected at the time of the previous survey. Indeed, the net balance for output expectations now stands at its worst level since the first quarter of 2009. Meanwhile, a substantial majority of surveyors continue to expect profits to fall further over the next 12 months.

Simon Rubinsohn, RICS chief economist, said that government data showed the construction sector had rebounded more strongly than many had expected, but that the latest survey cast considerable doubt on whether this improvement could be sustained.

"The collapse in public funding will inevitably have a major impact on the sector," he said. "Worryingly, the responses from small businesses operating in the construction industry indicate that they are being squeezed by increased competition for projects from larger firms.

"Indeed, their long term viability is being put in danger at a time when government has pledged to help small businesses," he said.