What Role Does Europe have in Shaping the Future of the UK Construction Market?

After 12 years of sustained growth, in the second quarter of 2008, the construction sector entered its worst economic downturn since the Second World War. This year’s Autumn Statement predicated economic growth to be -0.1%, down from 0.8% forecasted in the Spring budget and confidence in the construction business outlook is now the lowest for almost four years.  The CIPS Nov 2012 Index continues to show an ongoing subdued trend in output across the construction sectors of Housing, Commercial & Civil Engineering reflecting the UK economy as a whole. Furthermore, the UK Contractors Group (UKCG) have forecast output to fall by almost 6% over the next two years, before a return to growth in 2014/15 and identifies a bleak 12 month period ahead due to a lack of new projects replacing those recently completed; exacerbated by squeezed budgets and a rise in material and fuel costs.

Public new housing and public non-housing have been the worst hit sectors closely followed by the private industrial and private commercial sectors respectively with 49% of contractors reporting falls in profit margins.

The recession has already had a particularly large negative impact on the house-building sector with a fall from the £4.5bn in 2007/08 to approximately half this at the present time. Infrastructure expenditure, conversely, has continued to rise and is now approximately two thirds higher compared to that of 2007. Unfortunately, house building is invariably undertaken by UK firms whilst the larger infrastructure projects are undertaken by European or International companies. In addition, the UK sources £12 billion of construction materials from abroad whilst only exporting half of this – a net balance of £6 billion - 60-65% of this trade is with the Euro zone countries.

Clearly there is a need for the construction market to take advantage of any opportunities they can and whilst the Government are and, have been, implementing various initiatives and funding for the home grown market, the more robust companies at present are those who have looked to overseas markets. 

Compared to its European counterparts, the UK has suffered from a more pronounced decline in construction activity since the onset of the recession. In May 2011 the Cabinet Office published its Construction Strategy document. It noted that it was widely acknowledged that “the UK does not get full value from public sector construction” and that the Government had “failed to exploit the potential for public procurement of construction and infrastructure projects to drive growth”. 

The Government’s austerity measures have positively contributed to the confidence of the British Pound compared to the majority of the Euro zone but the UK economy remains fragile and the exposure of some of the major European suppliers with UK divisions adds an additional source of risk to any potential recovery.

In order to survive, the UK Construction sector must change and broaden its geographic horizons to prevent the North-South divide becoming a UK-Euro divide. If the government is to lift the economy out of recession quickly, it needs to ensure that it focuses clearly on public and private investment, rather than a series of announcements and initiatives that lead to very little activity. If it is to ensure that the path remains open to growth then it must encourage the industry to embrace the opportunities of Europe.