The Construction Industry: Recovery?

This year has been a very difficult one for all industries, and that includes construction. We have seen some signs of growth, which is, of course, very positive, however, it has not been spread across all sectors evenly, and the prospect of further disruption still remains high.

Signs of Recovery

In April, construction output fell by a record 41.2%, but encouragingly, there has been a good rate of recovery month on month as further sites have reopened, and productivity has restarted at solid rates. However, construction activity still remains lower than it was before the pandemic hit the UK.

So, yes, there are signs of recovery, but the levels of recovery are not uniform across all sectors of construction, and there is an overall dip in most areas. Infrastructure breaks the trend, being the only sector to have actually risen above the pre-coronavirus level of output by August. One of the big reasons for this is because activity didn’t fall as much during the lockdown, as the larger, outdoor sites made it easier to continue the work whilst meeting social distancing requirements. Infrastructure has found itself in this position because it’s a sector with a strong pipeline of projects queued up, and its spending frameworks help encourage financial certainty.

Troubled Sectors

The situation that airports find themselves in during this time has led to further problems. Large multi-year programmes involving the construction industry have been put on hold all around the country, with air transport being one of the four worst affected sectors of the service economy. If we were to look back at August, we would find that output in this sector in relation to construction work was still less than a fifth of the levels seen through February.

Private housing is the sector of construction that fell the furthest, however it recovered very sharply in August and ended up at just 3.5% below its pre-coronavirus level. This went against analytical expectations; it was speculated that as a sector highly reactive to economic conditions, a slower climb back up would be more likely.

The labour market has been kept going, to a certain degree, by the furlough scheme, but it has become noticeable that the unemployment and redundancy rates began going up as the scheme was reduced from July. Also thrown into the mix during the coming months will be a scarcity of high loan-to-value lending, the stamp duty holiday reaching its end and the narrowed eligibility for Help to Buy from April 2021, meaning that next year will throw up plenty more challenges!

Commercially, we are looking at interesting times. Yes, there has been recovery, with contractors looking to avoid delay-related cost increases for projects that have been paused due to the lockdown, but a big change that could affect the construction work offered to firms is the fact that many organisations are working from home, and it is likely that, going forward, a much higher amount will still be doing so compared to any other year, meaning less building work will be required.

Finally, if the pandemic hadn’t been enough of a disruption, we must also factor in the likely further Brexit-related disruption! We will hopefully see this industry continue its process of recovery, but it is not going to be plain sailing, and, clearly, there will be plenty of hurdles to navigate around.