Updated: 16th April 2020
Julie Palmer, a partner at the Real Business Rescue Advisory, says that although times are tough for the UK’s construction sector, better times could lie ahead if companies are able to adapt and improve with the help of new technologies.
Reflecting on the current situation within the construction sector and its prospects for the future, Julie Palmer writes:
The UK’s construction sector and the companies within it have been operating in the face of some stern headwinds in recent months and activity levels have been notably subdued of late as a result. However, there are good reasons for optimism for the long-term future for construction companies, not least that new technologies are emerging all the time that could help make construction work radically more efficient and easier to manage.
The construction sector has repeatedly shown itself to be resilient and robust, not least in the wake of the financial crash of 2008, when there were huge pressures put on the finances of building firms and employers right across the country. Current circumstances are different but there’s little doubt that Brexit-related uncertainty is making it tough for construction companies to invest with confidence and to fill up their pipelines with work much into the future.
Indeed, the latest Red Flag Alert data from Begbies Traynor shows that close to 62,000 construction firms reported signs of ‘significant financial distress’ during the final three months of 2018. That figure represents a 4 per cent rise as compared with the previous quarter and underlines just how many enterprises in the sector are struggling to cope with the financial pressures they’re currently under.
“Meanwhile, the latest Markit UK Construction Total Activity Index shows a fall in business activity during February and March 2019, which is the first back to back months of decline since August 2016. The most commonly cited reason for declines in activity was that new contracts were not being secured at a rate that could keep pace with jobs being completed.
Brexit and beyond
Hopes among construction sector companies, along with their counterparts across much of the rest of the economy and the country, are that the UK will soon be equipped with greater clarity about what its future trading relationship with the European Union will look like. There’s no doubt that some of the latest data on activity and optimism within the UK’s construction sector makes for grim reading but there’s also good reason to assume that once the gloom of Brexit-related uncertainty has lifted the prospects for companies in the sector will improve significantly.
A key consideration in all this is the scale of imports and exports which are involved in the UK’s construction sector. According to the Office for National Statistics (ONS), there was £4.1 billion worth of materials imported and £1.7 billion worth of materials exported to and from the UK construction sector during the fourth quarter of last year alone. In most cases, those materials are being bought or sold by companies from within the EU, which highlights just how critical post-Brexit trading dynamics are for the industry.
Clearly, all construction sector companies will be keeping a very close eye on how negotiations between the UK and the EU evolve in the coming months, with the potential for sudden and dramatic increases in import costs not being ruled out. The situation as it currently stands, where the future trading relationship has still not been determined, is already having an impact, with some companies deciding to invest their money in stockpiling products rather than spending it elsewhere in potentially more productive ways.
But regardless of what the future holds for the UK as a whole, the construction sector will need to focus on improving the ways in which it operates and find efficiency gains wherever possible, with the help of some of the latest technologies that are increasingly becoming available.