RICS: Construction outlook worsens as spending cuts begin to bite (UK)

Sentiment in the construction sector began to decline again in the second quarter of the year, as fears over the scale of public spending cuts and ongoing uncertainty about prospects for the economy hit the construction industry, says the latest RICS Construction Market Survey, published today (August 18, 2010).

Despite some encouraging signs at the beginning of the year, the latest data shows 7% more surveyors reporting a fall than rise in total construction workloads. This is in comparison to the previous quarter where 5% more surveyors reported rising, rather than falling workloads.

Most sectors of the construction industry experienced a drop in workloads, although private commercial and residential were both broadly unchanged. Perhaps unsurprisingly, in light of cuts to budgets, public housing and other public works were the worst affected sectors, with the net balances sliding from 3 to -26 and 0 to -33 respectively. The large fall in the public works sector has been attributed to the suspension of the Building Schools for the Future program (BSF).

Across the UK, the only regions which escaped falling workloads were the South East and London, however even here workloads only stabilized, rather than increased. Elsewhere, workloads fell, with Northern Ireland recording the worst reading; 75% more surveyors reported falling than rising workloads there, compared with a -59% reading in the first three months of the year.

Just 1% of surveyors reported having problems procuring workers (down from 3% in Q1 2010) reflecting the competition among tradesman for work as construction projects diminish. Alongside this, surveyors' future expectations for employment revealed 16% more surveyors expect employment to fall than rise over the next year, compared with -5% in the previous three months.

The outlook for output and profit margins has also turned more negative. Profit margin expectations have been the most adversely affected, with 49% more surveyors expecting profits to fall rather than rise.

Commenting, Simon Rubinsohn, RICS chief economist said: "This survey suggests that it is too early to conclude that the construction industry is on the road to recovery despite the strong contribution the sector appeared to make to the latest GDP data. Significantly, spending cuts are already having an adverse effect on sentiment and although the cost of tradesmen and overheads continue to fall, raw material prices are rising – creating a difficult operating atmosphere.

"Surveyors are also reporting an increase in competition for work as larger firms bid for smaller projects. Meanwhile, a continued lack of clarity from the government on existing projects is adding to the uncertainty. Given all these factors, it's of little wonder respondents to the survey are feeling gloomy."

Source: RICS

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