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.