Belfast Telegraph

Building sector 'suffering from a crisis of confidence'

Analysis: Colm Lavery
Analysis: Colm Lavery
Margaret Canning

By Margaret Canning

Political instability caused by Brexit and the lack of a functioning Executive has created a crisis of confidence in the construction industry, a study has claimed.

Consultants Turner & Townsend said a general election may be required to re-establish impetus in the sector.

According to the firm's analysis, nearly 80% of contractors predict market conditions will remain "cold" over the next few months, with just under a quarter saying the market will get even cooler.

The report said total construction output in Northern Ireland decreased by 4.1% in the first quarter of this year.

Along with political instability, strong competition and tight margins were also hitting confidence in the sector.

Over half of the contractors surveyed said that tendering conditions were "cold".

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They also forecast an increase in construction tender price inflation for next year.

Turner & Townsend's market intelligence survey found political instability was the greatest threat to local contractors.

It predicted tender price inflation would increase from 1.7% to 2.3% because of the political situation, with delayed approvals, a weakened pipeline and muted investor confidence also having an effect.

The private commercial sector has also replaced the public sector and housing as the top performing department in the market.

However, order books have improved in the first half of the year, though there is still room for improvement.

Books were on average 80% full for 2019/20, but just 64% full for the following year.

Colm Lavery, director of real estate and strategic lead at Turner & Townsend, said: "It has been a whirlwind year of uncertainty with the 'are we, aren't we' approach to leaving the European Union, combined with Stormont failing to return from dissolution, weighing heavily on the minds of contractors.

"They have also been feeling the effects as tendering conditions cool and construction output falls.

"The looming departure from the EU and low investor confidence remain key hurdles to the Northern Ireland market.

"The short-term outlook is understandably pessimistic.

"With some commentators talking of a recession, it may require a general election to provide the impetus needed to re-establish political certainty and restore confidence that the industry will improve."

Earlier this week the IHS Markit/CIPS Purchase Managers Index for construction found that the sector was continuing to shrink UK-wide because of Brexit uncertainty and clients refusing to make big orders until the UK's future relationship with the EU becomes clearer.

The index was 43.3 for September, down on the 45.0 recorded in August. Anything below 50 is seen as a contraction.

Joe Hayes, economist at IHS Markit, said: "Activity is being pulled down at its second-fastest clip for over a decade as firms are buffeted by client hesitancy, heightened Brexit uncertainty and a weak outlook for the UK economy."

Belfast Telegraph