Construction industry indicates economic optimism

by Julian Briggs on 07/05/2020 0 comments
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“Bank of England warns of sharpest recession on record”.

I tend to start my day with a quick check of the news headlines. This morning the BBC news website led with the above headline.

Now I know some people get to a point where they avoid the news. In short, to avoid the depressing doom and gloom. This headline could be one to skim past, if you wanted to avoid negativity, during what is already a challenging time. However, on reading the article, admittedly towards the end, there were hints of optimism.

Yes we may be about to have the sharpest recession. And yes, inevitably the unfortunate reality is some will suffer. But in reality, the sharpness of the predicted recession is hardly surprising. Given the fact so many business have stopped trading, some unnecessarily, since the Covid-19 lock down.

In my opinion, headlines like the BBC’s one this morning only lead to harming the economy. According to the article “the Bank stressed that the outlook for the economy was “unusually uncertain” at present and would depend on how households and businesses responded to the pandemic.” Headlines like this are more likely than not to scare businesses and consumers alike. As the Bank of England said, the outlook for the economy will depend on how “households and Businesses respond”.

The economy is likely to recover much more rapidly than from the global financial crisis

According to the article Bank governor Andrew Bailey said he expected any permanent damage from the pandemic to be “relatively small”. The economy was likely to recover “much more rapidly than the pull back from the global financial crisis,”

He also praised the action by the government to support workers and businesses through wage subsidies, loans and grants. Saying the success of these schemes and the Bank’s own stimulus meant there would be “limited scarring to the economy”.

The construction industry & the economy

The construction industry and the economy have long been linked. Considered an indicator of the strength or weakness of the economy. In short when construction activity slows, this usually indicates a slow economy.

A strong economy requires, and encourages, confidence. When the economy is weak, people lack the confidence to borrow money to buy property. Similarly, construction companies lack the investment to build large scale projects. In contrast, a strong economy breeds the confidence to invest, and the construction industry tends to boom during financial, economic optimism.

So, with current fears of a recession caused by the effect of the coronavirus outbreak, and the uncertainty of how consumers and businesses will respond to the new normal, what indicators are we seeing from the construction industry?

Construction industry demonstrates economic optimism

Posted three days ago, the construction index reported that the value of new construction contracts, signed in the UK, during the Covid-19 lock down appears to be booming.

According to the Builders’ Conference, who monitor new contract awards, £9.7bn of new contracts were signed during April 2020. This is despite much of the industry being furloughed. This represents new construction contracts signed in April, and was up 20% on March, when the lock down began. Furthermore, this represents an increase of over 50% on April 2019, which was £6.2bn.

Builders’ Conference chief executive Neil Edwards said that the £9.7bn total “offers just a glimmer of optimism for an upswing in workloads when the lock down finally comes to an end”.

So who are the winners of the construction industry boom.

17 companies signed more than £100M worth of contracts in April

17 construction companies signed more than £100M worth of contracts in April. Here we rank them from top to bottom, based on total contract value.

No. of contracts signed

Contractor

Total value

6

1

2

2

1

1

3

4

5

5

1

5

1

13

3

7

1

BAM

BAM Nuttal/Morgan Sindall (JV)

Mace

Domis Property Group

Inland Homes

Network Rail

Persimmon Homes

Willmot Dixon

Galliard Homes

Barratt Homes

Costain

Marlborough Highways

Evolution Asset

Vistry Group

Taylor Wimpey

Engie UK Ltd

Saipem

£2,260M

£1,500M

£497M

£400M

£200M

£200M

£175M

£174.4M

£174M

£169.9M

£161M

£156M

£115M

£114.3M

£112M

£110.4M

£100M

The construction index article listed, in full, 50 companies that had signed new construction contracts in April. The remainder had won new contracts valued, from top to bottom, between £93.7M – £27.1M.

Conclusion

I’m one of the worlds optimists. Preferring to look at the opportunities rather than lose track of my goals dwelling on problems. However, that’s not to say I’m deluded. So, to provide a balanced article, I’d like to point out that despite the indicators for April suggesting positivity, the likelihood is we’re in for a short shock when we return to the new normal. How long the lasts depends on the behaviors of businesses and consumers. But it can be seen in the slow decline of future tender opportunities. This is probably caused by current uncertainty, and if we return with positive behaviors it’s likely to be short lived.

As I suggested in a previous post, the chances are your business plan for the year isn’t going to plan. But what’s your strategy? Business leaders can wait and see what happens. Alternatively they can get on the front foot and be proactive in their approach to the new normal.

Whilst it maybe daunting, proactive behavior will help the economy, business and the UK as a whole, to pull out of this forced economic dip quicker. Previous recessions have shown that those business that enter a recession in good shape, can thrive during a downturn. And, as the current situation has proved also, for those companies that are forward thinking, innovative and pivot their business model, there’s always opportunities out there.

No one’s coming

As the business community waits to hear what the PM says on Sunday, and the plans to ease the lock down and return to the new normal, it reminds me of what I was once told by a business coach…

“No one is coming to rescue you”.

As a brief summary, the point being made is that business leaders need to take the necessary action to help themselves, and their business succeed. Don’t wait around expecting someone else to rescue you. Why? Because no one is coming.

So, whats your business strategy for the new normal?

Challenging times define business leaders. So, What’s your leadership style – proactive or procrastinator?

There’s no doubt about it, we’re about to enter a new normal that none of us foresaw. As a result, none of us had a plan to deal with it. However, it doesn’t have to be doom and gloom, as the figures above indicate.

With the right strategy and business model in place, you can capitalise on new opportunities. At the same time getting ahead of your competitors, that are waiting to see what happens.

Now is the time to take affirmative action.

If you want support getting your business ready to take advantage of the opportunities in the new normal, talk to us, Our network of professional Business Consultants and talent solutions services can help you and your business thrive.

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