Slowdown, but don’t panic

I can’t understand the business model of some of my competitors. They are paying unsustainable salaries and under-bidding on projects. They are building up real problems for the future.” Could this just be schadenfreude from a competitor losing out on market share or an accurate warning over future workloads not matching bulging pay packets?

A glance through the latest economic brief from the RICS does offer some backing to the aforementioned boss’s caution. The report paints the bleakest outlook for the sector for some time (see news, page 8). Not only are there the widely reported macro-economic jitters experienced by UK plc at present – retail spending down, house prices flat, etc – but there are some worrying sector-specific concerns that are beginning to cloud construction. A consumer spending downturn could clearly knock a sector that has offered construction steady and predictable work and, given that much city centre regeneration work comes on the back off retail, it could bring about an added negative effect as well.

Perhaps more worrying is the outlook for public sector spending, which has pretty much single-handedly propped up construction order books so far this decade. The lack of government spending in 2004 and a renewed slip in housebuilding has not helped. Add that to worries reported last week over whether a large chunk of PFI spending will be reclassified as debt – unbalancing the state of the public finances and reining back future spending on schools and hospitals – and you have a less than rosy outlook.

While it is too early to spell economic gloom for the UK (the RICS report stresses that we are most likely currently experiencing an “uncomfortable patch” in the economic cycle rather than a full-blown downturn) it may be worth reconsidering all those bullish business plans made when the outlook was rosier.