Dead stop on the road to recovery

The construction industry's woes go much further than a housing slump. Tom Stevenson reports

The profits warning from Williams Holdings yesterday was pretty unambiguous. The recovery in the UK construction industry, such as it was, has petered out. A reasonable first quarter was followed by a "noticeable slowdown" in the second three months of the year, and the outlook for the second half remains uncertain.

Worryingly, with many of the biggest construction and especially building material companies heavily dependent on Europe and the US, those two markets are also under the cosh. In America destocking is aggravating already weak trading.

What is really surprising about Williams' comments is not that they were made but that they were made so late. Many analysts have been downgrading profit forecasts in the sector since the spring and a steady drip of figures from trade organisations has underlined the parlous state of the industry.

Latest figures from the National Council of Building Materials Producers (BMP) forecast no improvement in infrastructure work and a further slump in the housing market, where a 13 per cent decline in output will be compounded by less repair and maintenance work.

The industry is suffering across the spectrum, with declining house sales matching a fall in housing starts, cuts in the government's road building programme and a failure of the Private Finance Initiative (PFI) to make up the difference.

Critics of PFI say the Government's promise that privately financed projects would supplement existing government spending has been reneged on. Private finance is being used as a substitute for government spending.

That would be all right, groups such as the BMP claim, if the initiative was up and running. But contractors and the materials producers that supply them are having to suffer the double blow of no government work and, because of bureaucratic log-jams, no privately financed projects.

One of the main problems with PFI is the insistence by government that all capital expenditure projects are pushed through the initiative to see if it makes sense to try to raise funds via the private sector.

That has created a backlog of projects, with the four road schemes so far put out to tender still struggling through the process. The costs of tendering are high and contractors are proving unwilling to take on "high risk" infrastructure projects without an acceptable return.

Delays and cuts in road building tend to hit contractors and producers of the heavier building materials such as cement. At the other end of the scale, however, things are no better.

The slump in the housing market, where analysts expect to see a fall in starts from 157,000 last year to 145,000 this time, is hitting what the industry calls light-side products such as boilers, radiators and doors.

The housing market looks likely to remain in the doldrums for the rest of the year. The prime selling season of September and October may be scuppered by potential buyers holding fire to see what the Budget brings.

As the chart below shows, building activity generally, not just housing, tends to track consumer confidence. New house purchases and repair and maintenance accounts for 37 per cent of all building work, with a further 29 per cent attributable to commercial investment, which is governed by spending on general goods and services. Given the close correlation, it is hardly surprising that the absence of the feel-good factor is being reflected in the construction market.

Equally unsurprising, the stream of bad news from the industry has hit shares. The two building sectors have both performed extremely poorly against the rest of the market over the past year, with construction (a 25 per cent underperformance) faring even worse than materials (16 per cent down against the market). It is hard to see the shares bouncing soon.

Comment, page 17

Start your day with The Independent, sign up for daily news emails
Life and Style
Fans line up at the AVNs, straining to capture a photo of their favourite star
life Tim Walker asks how much longer it can flesh out an existence
Life and Style
Every minute of every day, Twitter is awash with anger as we seek to let these organisations know precisely what we think of them
techWhen it comes to vitriol, no one on attracts our ire more than big businesses offering bad service
Professor David Nutt wants to change the way gravely ill patients are treated in Britain
people Why does a former Government tsar believe that mind-altering drugs have a place on prescription?
Norway’s ‘The Nordland Line – Minute by Minute, Season by Season’ continues the trend of slow TV
Arts and Entertainment
Jonny Evans has pleaded not guilty to an FA charge for spitting at Papiss Cisse
Life and Style
Kate Moss will make a cameo appearance in David Walliams' The Boy in the Dress
The image released by the Salvation Army, using 'The Dress'
Liverpool defender Kolo Toure
football Defender could make history in the FA Cup, but African Cup of Nations win means he's already content
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Customer Relations Officer

£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Jemma Gent: Project Coordinator

£12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable