Noble Francis: “renewals put off”
After the publication of government statistics showing that construction output fell by 5.2% in the second quarter of the year – contributing to an overall 0.7% shrinkage in GDP – there’s concern that the Olympics will significantly depress construction output in the third quarter, putting even more pressure on construction businesses.
In preparation for the Olympics, many roadworks projects in London and the south east were temporarily suspended, including widening works on the M25. Local authorities are now likely to delay restarting until after the conclusion of the Paralympics.
In addition, some commercial clients phased projects to reduce the amount of live construction scheduled for July and August.
At business advisory firm Baker Tilly, partner Mark Wilson said: “Works have been put on hold for the duration of the Olympics. If you look around London there are no roadworks, and no scheduled rail works either.
“I have one or two clients involved in the M25 – they finished in June, and won’t be back on site until October or November. That has an impact on their cash flow, and it will also show up in the ONS statistics for Q3.”
At the Construction Products Association, economics director Noble Francis agreed, saying: “Quite a few [roadworks] projects were rushed to get done ahead of the Olympics, but then contract renewals were put off – nobody wanted the risk that they’d straddle the Olympics. Now there will be a delay in getting them underway again, and that will affect things in Q3.”
Wilson was speaking following a Baker Tilly & Company Watch survey into SME construction businesses turning over £2m-£25m, which showed significant falls in sales and profitability across the board, with margins falling faster than sales. However, the SMEs fared slightly better than in 2010.
Wilson said: “You could say the trend isn’t worsening, but this drop in sales and profitability comes on top of what we’ve already had. Our research shows pressure is building – declines in profitability are not sustainable in the long term.”
Meanwhile, the CPA’s Francis predicted that the ONS figures for construction output in Q2 could be revised slightly upward, as this week’s figures are provisional and the full data – including detailed statistics for June – will only be available on 10 August. The estimated Q2 figure of a 5.2% drop follows a 4.9% fall in output in Q1.
Francis commented: “I would question whether we’ve lost 10% of entire industry in the first half of the year. Undeniably things have fallen significantly, but I’d say 10% is a bit harsh.”
