Business development · 2 September 2016

Light at the end of the tunnel for embattled construction sector

construction_firms
Following a post-Brexit slump the construction sector is beginning to stabilise

The decline in construction sector activity in the months following the Brexit vote is beginning to slow, new figures showed.

New data in the Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) has shown that although business activity for construction firms remained in decline, the market has begun to stabilise following a record seven-year low for the industry in July.

The PMI dropped to 49.2 in August, up from an 85-month low in July (45.9), signaling the slowest rate of decline since figures began to drop in June as client confidence begins to recover.

Tim Moore, author of the Markit/CIPS PMI, said: “The latest survey indicates only a partial move towards stabilisation, rather than a return to business as usual across the construction sector. There were still widespread reports that Brexit uncertainty had dampened demand and slowed progress on planned developments.”

Despite improvements in construction overall, sub-sector data in the PMI report showed the contraction rate for housing activity at its slowest for three months, suggesting a direct impact on smaller firms.

Mike Chappell, managing director of commercial banking at Lloyds Bank, said that while figures suggested a return to prosperity business for larger construction firms, small businesses are facing a slower road to recovery.

“The order books of larger firms, many of which benefit from diversified revenue streams, appear to be in good shape, while several have either increased or restored their dividends. That said, anecdotal evidence indicates those further down the chain – such as mid-tier contractors and SMEs – are less bullish and more likely to adopt a ‘wait and see’ approach.”

The post-Brexit decline in the demand for construction projects has been felt by small firms already facing a disproportionate effect of “bad debt”, according to reports in August.

Data released by small business financier Bibby found that 29 per cent of small construction firms had written-off unpaid debt from their customers, averaging a total of £15,000, compared to an average of £11,829 among all small businesses.

The government announced the “Cutting Red Tape” review in December 2015, consisting of a series of measures intended to remove the bureaucratic burden of small construction firms. However, despite recognition from the government that small businesses in the construction sector needed to be supported, economic prospects have been in decline since the EU referendum in June.

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ABOUT THE EXPERT

Simon Caldwell is deputy editor at Business Advice. He has a BA in politics and communications from the University of Liverpool, and has previously worked as a content editor in local government and the ecommerce industry.

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