In a year bookended by the fall of Carillion and new sector investments by the Government, how has the wider UK construction playing field evolved? This week’s blog breaks down the latest Office for National Statistics reports on the industry’s recent output, evaluating their potential implications and detailing how concerned businesses can utilize construction financing to weather the tide amidst any New Year shockwaves.
What does the ONS September-October data reveal?
While the ONS’ final industry output datasets of the year always offer crucial insight into UK construction’s present welfare and areas with scope for future improvement, 2018’s results – perhaps moreso than any other period since the 2008 financial crash – hold particular significance. January famously saw the devastating collapse of Carillion, an industry titan responsible for countless outsourcing contracts, throwing the sector’s immediate prospects into severe doubt just months after the government’s HS2 railway line development yielded promising substantial contracts for enterprising firms in Q3 2017.
Perhaps it shouldn’t come as any great surprise, then, that the ONS’ October 2018 construction output / July-September 2018 new orders report depicts mixed fortunes for this increasingly turbulent sector of late. One need only initially consult the industry’s recent overall output figures for ample evidence – construction output rose by 1.7% in September compared to the previous month, only to then decrease by 0.2% come October, with the simultaneous 1.2% output boost in August-October similarly undercut by the knowledge that “this growth was slower than in recent months”.
Indeed, the Office’s overarching findings concerning the volume of orders placed over Q3 2018 are no less deceptive at first glance; in spite of total new orders rising by 3.4% when juxtaposed with April-June’s figures, UK construction firms reliant on housing projects for their survival would’ve found scarce reason for celebration at the time given how their new orders dropped 5.3% during the same period. Couple this knowledge with the UK data-gathering organisation’s statement that total construction new order levels “remain below those generally seen in the past five years” and few would blame struggling construction firms for detecting unsettling industry trends which could threaten their finances if left unchecked.
But the importance of delving beyond the aforementioned ONS publication’s headline figures cannot be overstated, since you’ll find plenty of scope for optimism in other areas of the report. For instance, the 3.4% quarter-on-quarter hike in new orders came about primarily thanks to “public other new work” rising by 31.9% over July-September, indicating that construction firms willing to pursue non-traditional projects such as public service building contracts may find abundant opportunities to do so awaiting them right now. Arguably the most emboldening statistic of the lot, however, comes via the total value of UK construction’s October output, which rocketed 3.8% above its October 2017 counterpart at £13,970m, showcasing the high-value contracts still coming onto the market.
How could other industry developments affect the situation?
Of course, sector data alone rarely paints a full picture of UK construction’s present status quo – especially amidst this post-Carillion, pre-Brexit era of widespread industry uncertainty. Last week’s healthcare finance guide (hyperlink once published) mentioned that another industry behemoth currently undergoing immense financial pressure is Interserve, an outsourcing firm which started life in the construction industry and still awards numerous building projects on the UK Government’s behalf. The firm’s future remains severely in question even after the implementation of a “last-ditch rescue package” by lenders in March, its ability to pay invoices on their agreed terms reportedly impeded by diminishing finances over the first half of 2018 and investors betting against its shares in November.
Fortunately the Government has taken UK construction’s current woes into account within its Industrial Strategy, announcing the development of a “Core Innovation Hub” aimed at diversifying the sector’s workforce and showcasing its exporting capacities to international contractors. Backed by £72m worth of initial funding, the Hub’s team will work to standardise certain construction practices and processes as well as introducing new technologies such as virtual reality (VR) and augmented reality (AR) which lessen the need for on-site workers to enter dangerous environments. This in turn should theoretically enable construction businesses to employ a wider roster of staff such as those with disabilities, simultaneously strengthening the sector’s 3.1m-strong employee base and combatting fears that the ageing workforce could otherwise prompt skills shortages down the line.
Preparing for the New Year with construction financing
So in spite of the challenges faced by industry players in terms of new orders and wider industry output, the combination of burgeoning public projects, emerging technological breakthroughs and Government-backed investment in UK construction should provide a multitude of reasons for businesses to confidently pursue construction financing next year. Maybe you’re looking to fund a marketing campaign for workforce diversification via an unsecured business loan, combat the rampant industry issue of late payments via an invoice finance arrangement, or take advantage of your property / vehicle roster with asset finance to support auction bids – the potential avenues opened up by construction finance are near-endless!
If you’re interested to learn more then be sure to stop by our construction finance page, wherein you’ll find details of the various cashflow solutions available to businesses depending on their size, industry experience and commercial ambitions. Alternatively, we’ve also published an in-depth guide to why struggling firms should put aside their reservations and consider pursuing construction financing to secure industry success in the months ahead, so read it today if you need any further incentive to get in touch.