The British construction industry is hopeful that 2011 will see improvements in turnover and gross profits despite poor confidence in the sector, according to a new report.
Although confidence in the sector remains low this quarter and still lags that of most other sectors, there is still optimism looking ahead, says the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM).
The Confidence Index of businesses in the construction sector fell by 1.3 points in the fourth quarter of 2010 to 6.3 points compared to the 7.6 points seen in the third quarter. This is the lowest Confidence Index for the sector seen so far this year and is a significant decline from the considerably more buoyant 24 points seen in the first three months of the year.
Only 47% of businesses in the construction sector, down from 51% in the third quarter, are more confident in the economic prospects facing their organisation over the next 12 months. The proportion that is less confident about the coming year is relatively unchanged at 30% compared to 31% in the last quarter.
The gloomy outlook of construction businesses may be attributed to factors such as the impact of a floundering housing market, cuts in capital spending and reduced funding for housing and regeneration announced in the Spending Review, the report says.
It also points out that tight bank credit conditions are continuing to make access to capital difficult.
Despite the decline in confidence, construction firms expect some improvements to their business performance over the next year after a difficult 12 months in 2010. Turnover is expected to increase by 2.4% after falling by 3% over the last 12 months. Gross profit is expected to rise by 2.2% after seeing a 4.2% fall over the last year.
‘With continued restricted access to capital, many construction businesses will be experiencing cash flow problems which won’t be helped by demand in the sector seeing some shrinkage following the Governments Spending Review and stagnant housing conditions. Contractors in some parts of the country will not expect to benefit from work stemming from high-profile infrastructure projects such as Crossrail and the London Underground upgrades, which might add to the pessimistic sentiment,’ said Phil Westerman, construction partner at Grant Thornton.
‘The construction sector does however predict some improvement for turnover and profits through 2011 as more clarity over the economic climate and the impact of the Government’s spending cuts emerge,’ he added.