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
Arts and Entertainment
Joe Cocker performing on the Stravinski hall stage during the Montreux Jazz Festival, in Montreux, Switzerland in 2002
musicHe 'turned my song into an anthem', says former Beatle
News
Clarke Carlisle
sport
Sport
footballStoke City vs Chelsea match report
Arts and Entertainment
theatreThe US stars who've taken to UK panto, from Hasselhoff to Hall
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Life and Style
Approaching sale shopping in a smart way means that you’ll get the most out of your money
life + styleSales shopping tips and tricks from the experts
News
newsIt was due to be auctioned off for charity
News
Coca-Cola has become one of the largest companies in the world to push staff towards switching off their voicemails, in a move intended to streamline operations and boost productivity
peopleCoca-Cola staff urged to switch it off to boost productivity
Environment
Sir David Attenborough
environment... as well as a plant and a spider
Voices
'That's the legal bit done. Now on to the ceremony!'
voicesThe fight for marriage equality isn't over yet, says Siobhan Fenton
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

SThree: Graduate Recruitment Consultant

£20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there