Unlike some other sectors, construction is a large employer especially of the unskilled and low paid so job losses in this sector will put greater strain on welfare payments at a time of Government cutbacks. March saw the 9th consecutive decline in employment in the building sector. Reduction in output will also affect an already weakened supply chain.
The figures seem to suggest there was even less output in January than in a December affected by severe weather conditions. Ross Walker, from RBS Financial Markets has suggested the figures may be revised upwards. Let’s hope for the sake of thousands of construction workers he is correct. The decline affects not just building but allied services like maintenance, residential and commercial property management etc.
The decline in public sector spending is the likely prime reason for the decline. The withdrawal of the ‘Schools for the Future’ programme was an early sign of the Government’s intention to reign in even capital expenditure. Construction of public buildings, hospitals and infrastructure will reduce if Government spending is cut back as planned. Cuts to local authority grants will also affect spending on local construction projects, refurbishment and renovations. Birmingham City council, for example, aims to cut it budget by £212m over the next 4 years, and whilst ongoing public programs such as the new £193m Library complex remain unaffected, such a massive cut will undoubtedly affect other projects.
Of course, as KPMG’s Director of Construction Richard Lyle points out, growth in the UK economy will eventually filter down to the construction industry. Business growth will lead to improved prospect for commercial sector Consumer confidence will generate extra retail requirements. And eventually, relaxed lending and improving employment will drive New Home construction.
The big question though is ‘how soon’. At the moment it is difficult to judge how long it will take for the private sector to generate enough growth – and confidence in continued growth – to lead to growth in construction and commercial properties. Birmingham will see direct council job losses of almost 2500 - it is unlikely to see a confidence-led upsurge in demand for new homes and commercial properties Birmingham in the near future.