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Recovery must be more diversified in 2014

What should the highlight of 2013 be for construction? Help to Buy? The industrial strategy? Approval of Hinkley Point? Or the progress on Crossrail and other major projects?

Given the current positive outlook for the industry, it would be easy to misinterpret a catch-up in one or two sectors for a broad and sustainable construction recovery.

Heavy legacy

The industry is in a better shape than was forecast 12 months ago, but the legacy of an extremely tough five years will continue to weigh on its health and cohesion as recovery strengthens.

On one hand, most indicators - output, orders, the Purchasing Managers’ Index - point to accelerating recovery.

“The UK’s position as an asset-rich, cash-poor nation will shape markets for consultants and contractors for years to come”

On the other, data on the shape of the economy suggests recovery in exports and investment, particularly outside of London, will need to take hold before we can be confident that a synchronised upturn is under way.

One area where recovery has been established is housebuilding. Data following the launch of Help to Buy showed housebuilding volumes rose 16 per cent in Q3 2013.

Range of concerns

Labour-intensive, local work driven by housebuilding is just what the supply chain needs, and the decline of brick stocks and other aspects of supply show support was genuinely needed.

However, with concern around rising house prices, recovery needs to be more diversified in 2014.

Private housebuilding is doing well, but the scaling down of the Energy Companies Obligation and the Green Deal’s slow start point to acute levels of price sensitivity in most sectors that are not supported by asset value inflation.

“If government can only fund HS2 by inviting the Chinese to build it, then the industry really will have a problem”

The UK’s position as an asset-rich, cash-poor nation will shape markets for consultants and contractors working in the public and regulated sectors for years to come.

Yes there will be plenty of investment, but it will have to deliver more for less, and more smartly than has been the case in previous cycles.

The alliance models being adopted by many utilities to deliver programmes suggest a recognition that change is necessary - from both clients and supply chains.

Foreign driver

The drivers for these changes could come from many sources - the adoption of building information modelling driven by government mandates, for example, or the wider challenges cited by the industry strategy.

One driver is likely to be foreign competition. If government can only fund HS2 by inviting the Chinese to build it, then the industry really will have a problem.

Accordingly, the need for the UK industry to continue to raise its game will not subside, even if the short-term prognosis is for stronger markets and increased demand.

On this basis, 2014 will be a year for safeguarding the future as well as for consolidating recovery.

Simon Rawlinson is head of strategic research and insight at EC Harris

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