UK unlikely to see growth until 2014

UK construction activity fell sharply in the third quarter of this year despite a return to growth for the UK economy as a whole, the latest Construction Trade Survey suggests.

There was better news, however, in that fewer UK construction companies have been going into administration and voluntary liquidation during the quarter, although these figures come with warnings that the figures could be lagging behind other industry trends.

The Construction Trade Survey is put together by the Construction Products Association, which said that as well as construction activity falling in the third quarter, it was of greater concern that the forward-looking indicators of orders and enquiries were also negative, reinforcing concerns that the sector was unlikely to experience growth until at least 2014.

Noble Francis, economics director at the Construction Products Association, said, “Conditions throughout construction continued to worsen in the third quarter, as for the first time we experienced a decline in all construction sectors.

“While the public sector construction activity has been falling for some time as a result of the government’s cuts, private sector activity is also now falling sharply. On top of this bad news, infrastructure work declined in the third quarter, which is extremely concerning given the number of recent announcements from government aimed at stimulating infrastructure activity.”

Stephen Ratcliffe, director of the UK Contractors Group, said, “These figures show how difficult trading conditions continue to be. With declining public sector spend and a lack of confidence among private investors, action is urgently needed to kick-start the construction sector.

He said the industry welcomed the steps government ministers had taken to boost confidence in construction, but the focus needed to be on delivery now.

“Programmes such as the UK Guarantees Scheme are a positive step, but we need to see shovels in the ground as soon as possible.”

The government was told by Julia Evans, chief executive of the National Federation of Builders, that it should not “take its eye off the ball with regards to construction”.

She said, “The government’s moves to streamline and speed up planning fast track and fund infrastructure, and fund more house building will not yield immediate results, but they are the building blocks necessary to ensure a sustainable recovery for construction.

“The more immediate consideration for government is to continue to ensure that access to finance for small and medium-sized businesses remains a high priority,” she said.

The latest Construction Trade Survey found that public new housing and public non-housing were the worst hit sectors for building contractors, with a balance of 38% and 34% respectively reporting falls in output. Also, 26% of contractors reported that, on balance, orders had fallen in the third quarter, while 50% of large and medium sized building contractors, on balance, suggested that tender prices reduced in the quarter.

Insolvency figures

However, third quarter 2012 statistics from The Insolvency Service for the construction sector brought better news.

Mark Wilson, restructuring and recovery partner at accountants Baker Tilly said, “Surprisingly, administrations in the construction industry for the third quarter are down a thumping 24% on the previous quarter.”

He added that voluntary liquidation figures had seen a reduction of 7% over the previous quarter and 17% over the third quarter in 2011.

“This compares with a quarter-on-quarter decline of 12% administrations across all industry sectors, with liquidations in the third quarter of 2012 2.8% down on the previous quarter and 6.6% less than in the third quarter of 2011.”

He said, “These numbers fly in the face of the Office for National Statistics numbers released last month, which revealed that construction output for the three months to August 2012 was 11.6% lower than the corresponding quarter in 2011.

“Forecasts for growth in the sector are not strong, with a generally-held view that growth has stalled until 2014. While the insolvency figures should be welcome news, there must be a concern that they are lagging behind the trends being currently experienced in the industry.”

He added, “We still consider this sector to be one that will continue to experience pressure over forthcoming months, particularly if harsh weather strikes.”