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UK construction industry flat as economic uncertainty bites

Expectations were increasingly gloomy ahead of the government's announcement earlier this week outlining its plans to kick start the housing market.

Some 1% more chartered surveyors reported workloads fell rather than rose, the lowest reading since the fourth quarter of 2010. Over half of all respondents reported no change in workloads from the previous quarter, as the industry continued to face difficulties.

The main issues for surveyors are the increasingly uncertain economic outlook, the cutbacks in government's capital spending programme and a continued lack of finance for development projects. Chartered surveyors report they are continuing to provide quotes for work, but many of these projects are not going ahead.

This quarter, surveyors were asked to provide the main factors they felt were inhibiting the construction industry. Economic uncertainty and lack of confidence were the most commonly cited, with 80% of surveyors stating this as a reason, followed by cutbacks in government spending at 66% and lack of finance 63%.
The private commercial sector was one area which recorded rising workloads in the third quarter of 2011, but even this was subdued at a net balance of +7%. Given the contraction in government spending, public sector workloads continue to show the largest falls, with public housing and other public works retreating further into negative territory. Public housing was the sector which saw the biggest fall, as 20% more surveyors reported they fell rather than rose, the most negative reading since the fourth quarter of 2009.

Those questioned during the third quarter were gloomy about the prospects for the next 12 months. However, this could soon change with the government recently announcing its £400 million investment fund to boost house building projects across the UK. Prior to the announcement, all three of the expectations indicators, that is workloads, employment and profit margins, not only recorded negative net balances in the third quarter but they also all hit their worst levels so far this year. Profit margins took the sharpest tumble, down 42%, as surveyors noted contractors are competing for work with fewer projects, which is impacting heavily on profit.

‘The construction sector suffered in the third quarter of this year, as a combination of economic uncertainty, large cuts in public sector programmes and a lack of available finance for development impacted on the industry,’ said RICS chief economist, Simon Rubinsohn.

‘The government's housing announcement should gradually provide some much needed help and we are particularly attracted to the provision of funds for small and medium size developers. However, it remains to be seen whether the scale of the package really is sufficient to counter the negative factors depressing activity and profits across the sector,’ he added.