UK construction sector sees cost pressures ease

04 July 2012

Posted by Michelle Devonshire

Cost pressures in the UK construction sector have eased back this June, but the sector is experiencing a mixed outlook at present.

New data from Markit and the Chartered Institute of Purchasing and Supply shows the industry witnessed its sharpest decline in output for two-and-a-half years last month, while the Glenigan Index for construction starts dipped by three per cent in the three months to June compared with the same quarter of last year.

However, the UK economy is expected to see a strong boost in construction from the 2012 London Olympic and Paralympic Games, according to a report produced by Oxford Economics for Lloyds Banking Group.

The company has forecast a £16.5 billion upswing in gross domestic product from the international sporting events, with many small firms set to directly benefit from the legacy of the Olympics.

It is not only the capital that is expected to benefit from the additional funds, but Lloyds states in its report ‘The Economic Impact of the London 2012 Olympic & Paralympic Games’ that all parts of Britain will be enhanced.

A series of major construction and infrastructure projects have already been completed in preparation for the 2012 Games and Patrick Foley, Lloyds Banking Group Chief Economist, stated: “;We’ve witnessed a construction project on an unprecedented scale, the economic ripples of which are being felt not only in the host city, but across the UK.”

The Government is currently planning changes to the way in which it procures building services and has published a new Construction Strategy that is aimed at reducing costs while also benefiting the nation’s construction industry.

Launched by Francis Maude, Minister for the Cabinet Office, the proposals aim to cut spending in this area by 20 per cent before the end of the current parliament as part of public sector reforms aimed at improving value for money for taxpayers.

“;The construction industry will benefit from a more collaborative working relationship with the public sector, allowing for innovation, increased efficiency and delivering better value for money,” Mr Maude suggested.

Although cost pressures have eased back for construction businesses in the UK, June this year saw employment drop for the first time in four months, while output and new orders both fell back. This followed a strong Purchasing Managers’ Index rating of 54.4 in May and saw the measure drop to 48.2, below the 50 mark indicative of expansion.