News: Credit crunch hits construction

Thu, 18 Oct 07

A slowing housing market has dampened confidence in the UK’s construction profit outlook, despite growth in construction workloads stabilising this quarter, according to the RICS construction market survey published today...

Growth in construction workloads stabilised in the third quarter, though it remains firm and above the survey’s long run average. Sixteen percent more Chartered Surveyors reported a rise than a fall in the third quarter, the same as in quarter 2.

Stable growth in workload activity was more or less evenly distributed across the industry. Workload growth bounced back in the public works, public housing and private industrial sectors, while in the infrastructure sector growth in workloads slowed.

London and SE slowing

For the second consecutive quarter Scotland saw the fastest expansion in workloads. London and the South East are now experiencing the slowest workload growth of all the regions.

Surveyors’ workload expectations and confidence in the profit outlook fell, because of the housing market’s ebbing momentum. Confidence in the profit outlook over the next year is at the lowest level since quarter 3 2006 and below the survey’s long run average. Record corporate profits are driving business investments and keeping overall confidence firm.

Skill shortages remained relatively unchanged for the recruitment of tradesmen, with 30 percent of respondents having difficulties, compared to 29 percent in quarter 2. Labour demand in construction has been satisfied by the ongoing flow of migrant workers from Eastern Europe.

Pressure on labour resources

RICS senior economist David Stubbs said: “The cooling of the housing market, following the credit crunch and the Northern Rock turmoil has filtered down to the outlook for the construction market. Despite this, projects in the private industrial sector are leading the way this quarter.

Economic growth combined with the impact of the summer floods have increased pressure on labour resources and materials across some regions. The construction industry is stable and a slight downturn in confidence is to be expected given the current economic situation.”

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