What’s going on?

What is really happening in the construction market? I ask the question because I’ve spent the past couple of months visiting our regional offices, and the story on the ground seems very different from the pronouncements of think tanks, policy groups and Treasury officials.

On the one hand, the Office for National Statistics has reported that the UK’s GDP rose 0.8% between July and September, which was about twice what was expected, and the single greatest cause was a 4% expansion in construction activity. On the other hand, our offices are reporting that the market is as tough as ever. One cost consultant compared the challenge of managing his business unit to that of Ann Widdecombe’s appearance on Strictly Come Dancing: sometimes unnerving, always unpredictable and often seemingly hopeless.

To continue that striking comparison, we hope that things are not as bad as they look and we are hanging on for better things.

If we suddenly begin a surge of new work, it will be at least two years before contractors start on site. I am appalled that this message is simply not getting through to the government

The fact that GDP rose, or seemed to rise, did lead to some perky headlines and a degree of quiet government gloating. However my magical mystery tour, which took in the area between Bristol and Glasgow, would indicate that this performance may be overhyped. After all, our GDP is now almost exactly the same as it was in mid-2006, although the manufacturing sector was more than 9% larger then. And as we all know, with a 30% decrease in government capital spending forecast, and a housing market trembling on the brink of a double-dip recession, construction growth is likely to stall.

On the positive side, it is true we are seeing increased tendering activity and less preoccupation with salaries and job cuts. However, too many potential partners are acting like coy girlfriends on their first date, and are in no rush to seal the deal.

Another observation from my travels was that the market is as regionalised as ever, although the growth in private sector work in London is having a ripple effect on the rest of the country. This activity is mainly in the commercial sector and if we see some buoyant Christmas shopping sales figures, then we might see confidence returning to retail. Meanwhile, the developers are trying to second-guess the market so as to have their buildings completed just as the upturn comes in four years or so.

The health of construction is a core issue for Her Majesty’s Treasury. As we have just seen in the GDP figures, our industry has a strong effect on the UK economy as a whole. To turn off the capital spending tap and expect private sector demand immediately to pick up the slack is not going to happen. We are the supertanker of the industrial sector. It takes us a long time to change direction and once we have stopped, it is a while before we start up hiring in significant numbers and paying enhanced tax revenues.

It is true we are seeing increased tendering activity. However, too many potential partners are acting like coy girlfriends on their first date and are in no rush to seal the deal

So, even if we suddenly begin a surge of new work, it will be at least two years before contractors start on site. The architects and QSs will need to do their work first but they will not hire in serious numbers. I am appalled that this message is simply not getting through to the government. Where are the advisers with expertise in our sector? Are they mute, or simply ignored? There is a view circulating that the preservation of some infrastructure spending will act as a pump-primer for the whole economy and a growing feeling that the last two sets of
GDP figures, which together showed construction growth of 13.5%, prove they are correct in this assumption.

Cynically, perhaps, one should compare the construction cycle with the election cycle. If nothing happens for a couple of years but comes good around 2014/15, then the coalition government can go to the country with a super set of growth figures. The fly in the ointment will be all the professionals and trades people that will have left the construction industry in the intervening period.

A skills shortage is another sad feature of the construction cycle and it can sabotage growth. If we do nothing to keep our skilled workforce at this time, they won’t be there and we will need to look abroad. I wonder if at that time the government will re-examine its new immigration policy or whether, like Ann Widdecombe, they will keep dancing in the dark?

Richard Steer is senior partner in Gleeds