You’re about to read the first blog in a new series about the ups and downs of the construction sector in 2020. We’ll share our analysis of the sector – and what it means for you – through a number of blogs.
This blog, and upcoming blogs as well, also contains practical tips to let the administrative side of the business run more smoothly and smart advice for you and your clients to maximise the opportunities in VAT, tax and other legislation. In the final blog we offer you the possibility to download the full report for free, so follow this blog series closely.
In this first blog, we focus on sector development over 2019 and 2020, and on the impact of COVID-19.
2019 didn’t end well for many sectors in the UK. Political turmoil, the weaker economic growth and political issues like Brexit and the elections that followed resulted in a decline of all construction work of 1% in the last quarter of 2019. Over the whole year, the sector saw a modest 0.6% growth in all construction work.
After a decent start to the year, construction output grew by 1.4% and 2.7% in January and February 2020, respectively. This positive initial growth was underhanded by falls in output by 40.1% in April. As of June, the output grew to be still 24.8% less than what it had been in February. Fluctuations in the construction sector were mostly due to coronavirus shutdowns and following government regulations.
The regrowth since the initial output decline in April has set records on month-to-month growth, but the general state of the construction sector is still lower than optimal. If growth continues as it has since June, sections of the industry will return to where it was in February within, optimistically, less than a year. For example, the repair and maintenance industry saw significant growth in September, 2020, offsetting a portion of the decline of the industry in the five months before.
There’s significant support that the construction sector as a whole will be able to recover effectively in 2021
With a direct increase in all work within the industry since June, the largest contributor has been both public and private new house building. The success of these sectors of the construction industry suggests a positive development for the next few months, with significant support that the construction sector as a whole will be able to recover effectively in 2021.
The proportion of the workforce that have returned from furlough leave in the construction sector is 20.5%. This is the highest of any sector. Additionally, only 3-4% of businesses in the construction sector are currently not trading, with construction also having the lowest number of closing business sites. Turnover for businesses has decreased since September 2020, by a margin of 3%.
Impact of COVID-19
Since the COVID-19 pandemic began to become more serious in mid-March 2020, it has become clear that it is unlikely that anything in the professional world will remain constant until a vaccine is found and the final aftershocks have passed. Up until then, businesses need to focus on improving their adaptability to the ever-changing economic, social, and political climates. By encouraging change, companies can adapt to, and safeguard against, fluctuations within their sectors.
More prefab work and simplified constructions techniques
The construction sector, for example, generally tackles new projects from the ground up, with teams working together to complete a goal. Constant contact with the contractee is also necessary to complete tasks. Both of these generalisations are impacted by governmental restrictions on social distancing and containment. Preparation for changes in regulations, as well as implementing new strategies, can relieve these tensions. For example, more prefab work and simplified construction techniques can help limit human interaction on site. Additionally, the digitalisation of communication decreases in-person interaction during the planning process.
Disruptions in supply chains, a decrease in access to supplies, and a decrease in the number of sub-contractors available puts the sector in a fragile position
The construction sector, as of now, has not faced as much adversity as other sectors because of its flexibility in limiting human interaction. Though this holds true for now, disruptions in supply chains, a decrease in access to supplies, and a decrease in the number of sub-contractors available puts the sector in a fragile position. Because construction relies upon multiple other sectors to perform, its success is dependent, partly, on the adaptability of those sectors. Instability in the freighting and transportation sectors, as well in the business and administrative sectors, can cause ripple effects in the construction sector, leading to new obstacles to be crossed.
Adaptability is key
For the time being, the sector has not seen these effects upfront, but in the long term, as further fluctuations affect each sector, putting a focus on predicting any instabilities can temper the market against change. For example, business owners should expect changes in their material supply chain and create redundancies which absorb any negative impacts. Businesses should also establish a socially distanced working environment which can undergo stricter measures without needing to redesign the environment in the event that government regulations change.
The construction sector’s adaptability has been a vital asset in maintaining its operations, but, ultimately, it is up to individuals within the industry to expect changes and to be prepared to adapt to them as they come. This will provide the sector with the needed additional flexibility to stay maintained until those final aftershocks have passed.
In the upcoming blogs, we’ll talk about Brexit, changes in VAT and environmental tax, the Government Construction Sector deal, skill shortage, and payment delays, and we identify possible adaptations or solutions that help guard against any negative effects that may result from these influencers.
Xeinadin supports businesses in the construction sector. Visit our sector page for more info and an overview of the services we offer, or contact us directly if you need advice from one of our (local) business advisors.
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