The return of growth to construction will not see an immediate return to boom times
I was born in 1953 and having now logged three-score-years, I thought (true professional that I am) how interesting it would be to plot what has happened to UK construction output over the same time. Sadly, the earliest year I found in the denizens of the Office of National Statistics (ONS) was 1955, which reminds me a little of the former USSR and its history books: “it starts when the State says it does”.
In any event, in the past 58 (as opposed to 60) years, there have been 40 up years and 18 down - in terms of percentage gains or losses in real terms at 2005 prices, The longest winning streak was (no surprise) the 13 years from 1955 through 1968 (inclusive), when output doubled. Runner up, with 10 years of upswing, was the period 1995 through 2004 (which probably should have been an 11 - because I have never really understood 2005’s dip in output); and output grew 31% in real terms over this decade. At third is the eight year period from 1981 to 1989 when output surged 54%.
On the down cycle, the longest uninterrupted run was the five years from 1990 through 1994; and this resulted in a 14% real terms loss.
For the record what was the worst single year? 2009’s minus 13.4%. And the best? 1964’s plus 12.4%.
In any event, the industry will be operating at around only 84% of 2007’s level at the end of this year
As the money manager adverts warn though: “past performance is no guarantee of future returns”. Nonetheless, what can we glean from the UK construction industry’s historic performance?
Firstly, you have a better than two-thirds chance (69%) of having an up year as opposed to a down one. Second, an average upturn (six years) lasts twice as long as a down turn.
In the current year, it looks pretty certain to be the second negative in a row (i.e. both 2012 and 2013). Immediately, prior to this, the ONS figures for 2010 and 2011 were positive - albeit I believe this had more to do with ONS reclassification jiggery-pokery than reality; and, in my book, we have most probably had six down years in a row since 2007’s peak. In any event, the industry will be operating at around only 84% of 2007’s level at the end of this year.
Experian/CFR, where I have been an adviser for many years, is forecasting average growth in 2014 and 2015 of 2.5% and my wager is that there is more to come thereafter.
That’s the good news. The not-so-good news, is that if the industry grew at an average 2.5% in real terms between 2013 and 2020 (which would be very tidy indeed), output would only re-attain its 2007 level in 2020 i.e. seven years from now.
Yes, there is growth to look forward to but - in terms of scale - 2007’s volumes remain a dim memory, and none of us are getting any younger.
Tony Williams is founder and chief executive of Building Value