Things might - just might - be getting better for construction. But don’t get carried away - anything from raw materials inflation to spending cuts could knock us off course
There is a rumour growing in popularity that the worst is behind us and the recession may have bottomed out. It is a bit like the feeling you get on a plane when you have been though turbulence and there is a collective sigh of relief when they start to serve the coffee again. You are never really comfortable, however, until you land and the wheels stop spinning.
So are we looking at another false dawn or is there some foundation to this cautious optimism? The problem with this part of the boom-bust-recovery cycle is that the data coming from different parts of our industry is confusing at worse and contradictory at best. It doesn’t seem possible to work from hard numbers that have any consistency and so you tend to be buffeted by anecdotal evidence which then gives you a distorted view.
For instance, Atkins is said to be losing over 1,000 of its workforce, which is a huge number but these global engineers still have more than 17,500 people working around the world. Its recent trading statement describes the UK as “challenging” but the Middle East as giving grounds for optimism. This seems strange, with a large part of the Middle East in collective paralysis brought about by the troubles in Yemen, Egypt and Libya. Even Saudi has been getting jittery with trouble on its borders and isn’t Dubai still licking its wounds after the property crash? Perhaps the engineers are doing a discount deal on the renewal of bombed airfields and ripped up roads?
We also saw another 279 construction-related businesses disappear last month. But actually this was a decline in insolvencies compared with this time last year. Also there was some good news for the civils in the confirmation of 14 major road schemes worth £1.4bn and due to start on site by 2015.
I nearly fell off my chair when the roads minister said ’for every pound invested on roads, we get back £7 of benefits to the economy’. At last the government admits investment makes sense
I nearly fell off my chair when I heard the roads minister Mike Penning saying that “for every pound invested on these schemes on average we get back £7 of benefits to the economy”. An admission, at last, from the government that investment in our sector makes good economic sense. It is a pity that the whole of government is not listening. The £1.4bn promised for roads is a long way short of the £55bn lost from the cancellation of the Building Schools for the Future programme.
As the UK economy struggles to find its equilibrium, China marches on relentlessly. It expanded at a rate of just under 10% between January and March this year and its demand for oil grew by 10.3% compared with this time last year. This huge worldwide demand for raw materials pushes up costs, making it very difficult to cost projects for clients. No sooner has the tender hit the desk, than the figures upon which it was based can have changed.
India, from where I have just returned, is also facing rising inflation driven by higher fuel and manufacturing costs. The government has raised interest rates 10 times in just over 12 months, but it is the private sector that is fuelling the boom and so far the rate rises have had little or no effect - inflation is running at just below 10%. Bank of England take note.
As I said there is a mix of statistics at the moment and although none can be described as good news, at least they are going in a favourable direction - if we dismiss, as many have, the 4.7% fall in construction announced last week. Experian, the market analysis business, has revised its own figures saying that construction output is still likely to fall by 2.1% over the next 12 months but not as much as the 3.6% anticipated earlier in the year. Private commercial building is set to grow by 2% this year with London leading the way, we are told. However, according to the Chartered Institute of Purchasing and Supply the biggest cloud hanging over our industry is the spectre of spending cuts, “particularly as government stimulus starts to crumble”.
Raw materials Inflation makes it hard to cost projects. No sooner has the tender hit the desk, than the figures upon which it was based can have changed
The UK Contractors Group says that for every £1 spent on construction, a further £2.84 is created for the economy. Now the roads minister has upped the stakes, saying that for £1 spent on roads, it creates £7 for the economy. At this rate we should have the government begging us to accept its support since clearly the investment-to-return ratio is getting better and better.
Finally, while on the subject of investment and return, I wanted to thank all those in my own business who invested so much time and effort helping Gleeds win top consultant/ surveyor of the year at the Building Awards. After a very tough few years it is much appreciated. It just shows what can be achieved in challenging times when we all pull together in a great team effort.
Richard Steer is chairman of Gleeds Worldwide