August 27th Journal Column
Catriona Lingwood discusses there are more losses to come in the industry
Growth in the construction sector slowed last month, according to the respected Construction Purchasing Mangers’ Index from the Chartered Institute of Purchasing and Supply (CIPS).
The index readings take into account a number of criteria including new orders, employment and expected future activity. Any reading above 50 indicates an expansion of growth. July’s figure was 54.1, a sharp decrease in growth from 58.4 in June.
After five months of steady growth, July’s reading was the weakest since March, with every sector of the industry showing signs of contraction. However, this has been expected since May.
May, of course, saw the arrival of a new coalition government; one which heralded the advent of an age of necessary austerity, and promised tough action to address the country’s deficit.
The months since then have seen the implementation of a number of spending cuts which are just now beginning to bite. The CIPS figures are the first sign of the new policies taking effect, and it is not good news.
Cuts have been demanded in all sectors in the economy, most of which directly affect the construction industry. Funding for social housing has been reduced, leaving many projects on hold pending decisions on cancellation. The scrapping of regional housing targets means the likelihood of new contracts in the housing sector is very small.
Commercial work, such as shop and office projects, experienced the steepest growth of any sector between February and April and the gentlest slowing in this growth since, with July’s figures reading only 0.5 below that of June. However, recovery in the sector this year has not come through strongly enough to counter the difficulties faced elsewhere.
Hardest hit is civil engineering which posted figures close to the stagnant mark. Civil engineering includes public sector building projects, such as schools and hospitals, many of which have been cancelled or suspended.
The extent of the loss for civils is evident with just a few examples. The abandoned Building Schools for the Future programme was worth £55bn, funding for just one hospital project, now withdrawn, was £450m.
The sector awaits the next spending review with trepidation, expecting the cut of road projects in the autumn. Research suggests that the transport capital spending budget could be reduced by £30bn over the life of the current parliament.
These losses mean the improvement seen since April is likely to be cancelled out by the current downward trend. If it continues, civil engineering will be experiencing negative growth by September, and, despite the apparent steadiness of the commercial sector, the whole construction industry could be shrinking by October.
The construction industry is interlinked with every other sector; health, education, even defence. This means the health of the industry is a useful indicator of that of the economy as a whole. Unfortunately, at the moment, the prognosis is not optimistic.