In their latest industry reports, the Office for National Statistics (ONS) has detailed the current state of the UK construction sector. Touch Financial assesses the new data on the sector’s output and growth – alongside other related developments from this year – to reveal how asset based lending and asset finance could aid activity in the weeks and months ahead.
What were the ONS’ main findings on UK construction?
The ONS has published two datasets in recent weeks which together offer a detailed overview of the UK construction sector’s activity, successes and failures between January and May 2017. On a pure output level, the industry saw a noticeable decline during this period, with productivity dropping by 0.6% in Q1 2017 compared to Q4 2016, only to fall a further 1.1% in April compared to the previous month and then another 1.2% come May. The sources of the downward pressures blamed for this negative trend have varied from month to month, but among them were a £13 million drop in housing repair and maintenance in Q1 2017, a 4% decrease in infrastructure growth in May and a general reduction in new work available to construction firms once their previous projects had been completed.
Certain branches of UK construction appeared to prosper at times during the five-month period, however. Infrastructure, for instance, saw a 5.7% growth between March and April 2017, while new orders overcame two quarters’ worth of decline thanks to a 0.7% boost in Q1 2017 – the growth rate of new public housing in particular has remained strong in May. The public housing sector also gained £24 million further investment in May. ONS’ May 2017 report countered its earlier assessment that UK construction growth had slowed by 1.6% in April 2017, revealing how revisions made to the previous data meant that only a 1.1% drop occurred that month. These revisions which are made to ensure greater accuracy among other reasons suggest placing a considered level of credence in such insights.
How will this data and other recent news affect UK construction’s future?
Nevertheless, the January-May data still warrant analysis given its wider implications for the UK construction industry. The ONS notes how the abrupt shifts from growth to decline or vice versa for sub-sectors like infrastructure and public housing during this period only serve to showcase “how volatile construction output can be” in the current era of Brexit negotiations and other developments. Indeed, in the past month alone, the media have reported how the IHS Markit purchasing managers’ index (PMI) registered the highest construction growth levels since December 2015 in May thanks to a house-building boom, only for this to fall just a few weeks later due to “heightened political uncertainty”.
But Markit senior economist Tim Moore suggests the issues at hand for UK construction might prove greater than the “volatility”-induced blips encountered due to political watersheds of late. He says: “Fragile business sentiment led to delayed decision-making [in May-June] and greater concern about the outlook for workloads during the next 12 months. While construction firms remain upbeat overall about their near-term growth prospects, the degree of confidence fell to its lowest so far this year.” For some firms, these fears of long-lived struggles originate from concerns over whether their access to migrant workers will diminish post-Brexit, as shown by a recent Construction Industry Training Board (CITB) study. For others like BLP Insurance CEO Kim Vernau, the loss of “yet another Housing Minister” in June’s general election has them worried for house-builders, as does the raised costs of imported materials due to the pound’s current instability and rising inflation.
It seems difficult to imagine UK construction leaving the public or political agenda anytime soon, however, particularly given its importance to bodies like the ONS as an important economic indicator and output measure for the country’s overall GDP. In the wake of the Grenfell tower block tragedy, the sector’s activities will doubtless fall under heavier scrutiny in the months ahead in terms of its materials’ adherence to the EU Construction Products Regulation. Despite this, there are plentiful opportunities for the industry to restore any lost credibility, with the HS2 rail link, Crossrail, the potential third runway at Heathrow Airport all bound to be major projects requiring the involvement of numerous contractors. The effects of such projects will perhaps not seem instantaneously visible in future quarterly ONS papers, but given time they could stand to have a game-changing impact upon stabilising the industry’s “volatility”.
Could asset finance support the construction industry?
Certainly there are areas of the UK construction sector which appear lacking in financial security at present, with the ever-shifting status of branches such as infrastructure and housing suggesting – in the first five months of 2017 – their key firms could experience a turbulent fiscal year overall. Even outside of those areas, though, the lacking number of new orders and projects seemingly becoming unavailable to industry players at present might prove cause for concern, since ultimately any firm’s owners must rely upon a continual stream of work in order to fund employees and to generate their desired level of profits at year’s end.
Businesses using assets such as machinery or technology to support the delivery of their construction activities may need to adjust their working capital or reduce their lump sum payments to focus their investment decisions. Financial solutions such as spot factoring can assist in releasing select funds based on a business’ debtors and asset finance can provide the opportunity to access and fully use assets without ownership or refinance existing assets so funds are available for reinvestment.
If you are the owner of a construction business siding with caution, then you might consider contacting Touch Financial to discuss how asset based lending products and other alternative solutions such as asset finance could help you grow with more control over your cashflow. Feel free to visit our construction finance page for more details and construction financing case studies.