Signs of recovery?

Signs of recovery?

The construction sector continues to demonstrate growth and show signs of recovery with the Bibby Financial Services’ Business Factors Index reaching 115.2 in September – up from 97.6 at the same point last year.

The index, which tracks the quarterly performance of business turnover among Bibby Financial Services’ 3,000-strong UK client base, reveals the construction industry has an average index reading of 111 for Q3, making it the second best-performing industry in the UK after manufacturing.

These findings are reinforced by the recently released Office for National Statistics’ growth figures that reveal in Q2 the construction sector grew by a significant 6.8% and in Q3, increased by 4%.

Despite this strong performance, more than a quarter (26%) of construction firms state conditions are tough and they are only just surviving. In fact, 41% of firms state conditions are worse than 12 months ago – a direct contradiction of the Index reading.

This mismatch between performance and confidence is echoed by other sectors in the report and suggests despite the rise in business turnover, owners and managers have a pessimistic outlook, possibly fuelled by the political and economic events of the last few months.

This is particularly true for the construction industry which has been significantly impacted by the reduction in public sector spending announced in the Comprehensive Spending Review. Public sector investment in construction over the next four years will be £20bn less than it has been in the previous four years. This combined with the decision to scrap the Building Schools for the Future programme and further negative news such as the collapse of the property giant Connaught, means nerves within the industry are strained.

This negativity is also mirrored by the most recent Markit/CIPS Construction Purchasing Managers Index, which shows despite continued growth within the sector, outlook for the future looks less positive.

Other findings within the Bibby Financial Services’ Business Factors Index include:
• 28% of firms in the sector believe the effects of the recession could be felt for the next three years
• 39% of construction firms feel cutting VAT back to 15% would help stimulate economic recovery further
• 46% of firms in the sector have seen supplier relationships improve – the highest of any sector