Rebecca Larkin tells Natalie Daniels about the challenges facing the construction industry and why brick captures headlines for the wrong reasons.
Tell me about your background and career to date.
I have been an economist for around eight-to-nine years, working in general economic analysis of emerging markets and then the UK economy. I particularly enjoyed construction and housing and moved to the Construction Productions Association (CPA). I have been working there for nearly three years.
What has been your career highlight?
From an economics point of view, it is seeing how real life situations can reflect what you have learnt. Quite soon after I began working, we had the global financial crisis and the recession that followed – it was a really interesting time. Now, we have got the completely unprecedented situation of Brexit over the next few years. It is going to make things interesting for us.
How does brick stand against other construction materials?
I think brick grabs a lot of headlines as a catch-all for building materials and products and it can often misrepresent what is actually going on in materials supply. It is important for us to correctly report it. The Department of Business, Energy and Industrial Strategy provides thorough statistics for brick, and it is one of the very few materials that has comprehensive figures. We can go back to the news reports and say that often what these journalists are saying isn’t true, or may not be the overall trend in construction.
Which areas of the construction industry are thriving or struggling at the moment?
Everything is business as usual at the moment. I think issues will arise when the Government starts to trigger Article 50 and that generates a lot of uncertainty. You will see different phasing as to how that will affect construction – for example, private housing will be hit first as it is so closely linked to the economy. Then you will have long-term hits such as offices and retail, where current contracts will continue to be built out. It is when this demand stops that we will see a tail-off and a downturn in commercial building activity.
Is this something that the UK should be concerned about?
I think it is the uncertainty it generates. As I said, it is an unprecedented event and we just don’t know how it will play out. An environment of uncertainty can really affect businesses and investments. This filters through to decision-making and a lack of construction contracts, which will translate into lower building activity. It is about trying to see through the uncertainty to form an idea of what trends will arise.
Do you see the skills gap as an issue in the UK that could be improved on?
Without a doubt it is an issue. We have a large proportion of the construction workforce reaching retirement age. The construction workforce is still recovering from the last recession and we haven’t recovered the same amount of jobs on a nationwide level. There is definitely more to be done, such as recognised training qualifications, encouraging younger people and engaging with schools. From an economist’s point of view, it is quite difficult to promote from a skills perspective. In the 2008–09 recession, construction output fell much more sharply than the overall economy and was even more magnified in house building, for example. It is very difficult to smooth out economic cycles and showcase construction as an industry that has a steady growth profile.
What would you say is most important to encourage people into the construction industry?
I think it is the whole training and qualification side that can be promoted – certainly on the product side – but it can be very fragmented. There are thousands of training programmes – some formalisation of these would be useful. This way you can make a career out of having a skill in one area of construction, without barriers based on products you’ve previously worked with, or your location, for example, as can be seen in some Section 106 agreements and local labour clauses.
You mentioned a forecast was updated in November. What results did you get from this?
Our Summer forecast was determined immediately after the referendum, with almost no data for us to base our projections on. For the Autumn forecast we had a few data points and insight from our members who could inform us how construction and orders were performing ‘on the ground’. Compared with the Summer, where we’d been forecasting a contraction in 2017 and a recovery in 2018, our Autumn forecasts envisage broadly flat activity in both 2017 and 2018. Performance by sector is more nuanced, however, with a contraction expected in commercial offices and industrial factories and warehouses, but growth in infrastructure, which is shored up by five-year investment programmes.
Are there any trends in construction emerging in 2017?
The depreciation in the pound since the middle of 2016 has filtered through quickly into higher prices for imported materials and will combine with the inflationary pressures we’ve seen on the labour side over the last 18 months. This affects the entire supply chain, from product manufacturers through to building contractors. The construction industry doesn’t export very much so it remains exposed to any further volatility in the exchange rate that might occur as Brexit negotiations commence.
Rebecca Larkin is a Senior Economist at the Construction Products Association. Her work involves analysing the UK construction market, with a focus on private and public housing and collating and analysing economic data relevant to the construction products industry.