The UK construction sector showing signs of stagnation coming into 2018?

Christopher Oufi

Entering 2018, the UK construction scene hasn’t looked too promising as of late.  February 2nd saw the release of the much anticipated IHS Markit/CIPS UK Construction PMI index. This seasonally adjusted index provides an indication of the current state of the sector. A posting of 50.2 for January was below the 52.2 from the previous month. A figure of 50.0 signifies a no-change mark, indicating fractional growth. The current outlook isn’t promising by any means, with headline news causing decline in activity levels and denting confidence in the industry.

The dramatic collapse of Carillion rattled the construction industry, which has been building momentum towards sustained growth following the EU referendum. The British multinational buckled under pressures of repaying their £1.5 billion debt pile. Carillion’s presence within the sector was huge, employing 200,000 people in the UK alone. They had a huge holding on some of the most notable construction projects across Britain, including multiple government contracts and supplying services to the public sector. Noble Francis, Economics Director at the Construction Products Association, said that: “What we don’t know as [of] yet is the impact of the liquidation of Carillion, the UK’s second-largest contractor, and the estimated 25,000 to 30,000 sub-contractors it worked with.”

The flirtatious relationship with risky contracts that proved to be profitless, was an evident sign of Carillion overreaching its abilities. On top of this, their entertainment of late payments from Middle Eastern sub-contractors lead to their pleading with the government and banks for extra leverage. Max Jones of Lloyds Banking Group, who offer emergency support to building firms, said: “The impact of Carillion’s liquidation has rippled down the supply chain and shaken confidence across the industry.” Their evaporation from the scene has meant that a host of mega projects are being left delayed or discontinued. This involves 450 government contracts with five projects approximately worth £3 billion, including the Aberdeen bypass, Royal Liverpool and Midland Metropolitan Hospital, Rotherham to Sheffield tram-train and HS2 joint venture. The contagion effect across the whole industry is frightening with tens of thousands of sub-contractors being dragged to their knees due to the resulting lack of work.

The Office for National Statistics published recent estimates highlighting that the construction sector contracted by 1% in Q4 of 2017. This was after a 0.5% fall in Q3 and a 0.3% decline in the previous three months. As of 2018, the government has made the sector’s main driver of growth the focal point to stimulate the resurgence. Theresa May set out a preliminary objective of constructing 300,000 new homes a year across the UK. The National House Building Council registered plans to start 160,606 new homes, up 6% from 2016. Completed constructions rose 4% to 147,278, the most since 2008. However, an audit of surveyors discovered that their confidence in the government’s target is low, with only 12% believing it is likely that the target will be reached. Many across the UK are worried about the prospect of a construction skills shortage due to the end of free movement of labour from the EU.

With the UK’s construction industry being left to teeter on the edge after the demise of prominent figures in the sector, the government has had to intervene. With optimistic goals being set; millions hope that housebuilding will get back on course. The future looks uncertain with this uncertainty becoming the biggest nemesis towards the construction sector, due to Brexit looming ever closer. It seems the fat cats in positions of authority continue to line their pockets and ring-fence personal interests. Will the detachment from Europe provide new avenues for the industry to develop and forge new partnerships, or send it onto a crash course towards catastrophe?

Leave a Comment