Readers Question: What is the Economic significance of the construction industry to the UK economy, how it impacts, with respect to trend in economy.
According to BIS The UK construction industry contributed 9.2% of the nations GVA (Gross Value Added) in 2007.
The UK construction industry consists of over 250 000 firms employing 2.1 million people in a multitude of roles. (I assume that they are including people indirectly involved in industry e.g. supply chains) – It doesn’t mean there are 2.1 million builders….
The construction industry tends to be volatile. In a recession, firms will tend to put off or delay large construction projects, therefore in a recession, construction output can fall significantly.
Purchasing Managers Index PMI
One measure of the construction sector is the PMI. A value of greater than 50 indicates the sector is expanding. A value less than 50 indicates contraction. In December of 2009, it was 47.1 – the 22nd month of falling output. (link Telegraph) This shows that the construction sector has been one of the hardest hit sectors of the economy during this recession
However, during periods of economic growth, the construction industry is likely to benefit from rising confidence and rising investment.
The construction industry plays a key role in both aggregate demand and aggregate supply. A fall in demand for construction projects will affect the 2.1 million people involved either directly or indirectly in the construction section. A rise in unemployment in this sector could also cause a negative multiplier effect with lower demand throughout the rest of the economy.
The level of construction will influence the long term productive capacity of the economy, especially for construction of transport and communications e.t.c.
A significant part of the construction industry is the housing sector.
You’re quite right about the construction industry being volatile in a recession by putting off larger projects. We, on the other hand, have worked on the basis that recession is the perfect time to complete bigger jobs. We have more room for negotiation with suppliers, a bigger pool of staff due to many being laid off and, with the recession being Darwinian, much less competition fighting for the work.
For those reading this article, I say this. The construction industry is probably one of the most important industries to the UK (or any) economy. In the UK, we have massive infrastructure needs, a massive housing shortfall, and ongoing maintenance and repair works. Although there have been many job cuts and redundancies between 2008 – 2010, the future is bright for anyone wanting to work or find work in the construction industry.
Construction output rose 4.0 per cent in the third quarter of 2010, compared with an increase of 6.8 per cent in the previous quarter (ONS). Growth in construction output reflecting new work, grew by 8.8 per cent in the second quarter. The Blue Book 2010 gives the total output at basic prices of the construction industry as £214 billion. More than 2 million people are employed in construction. Interestingly, the single biggest reason why construction costs in the UK are higher than elsewhere is the cost of aggregates.
The recession has been very tough on the construction industry, however I think that if organisations change the way they market themselves and are empathetic to their consumer, they can encourage consumer confidence to improve and therefore demand for construction to increase. It will not improve over night, but it is something that will repair itself eventually.
It is clear that the construction industry has suffered in the recession; however, I would suggest that there are still opportunities available within this industry, and in particular as we prepare for the Olympics, job opportunities may arise faster than anticipated.