September’s mini-budget threw the UK into turmoil, with the now-scrapped 45p tax rate abolition forcing the Bank of England to make significant increases in interest rates to reduce inflation and stabilise the value of the pound.
The government’s subsequent U-turn on tax cuts came too late to prevent major mortgage lenders from hastily pulling deals for new applicants that were no longer viable in the face of rising inflation, and events are changing daily.
In short, we’re living in uncertain and volatile times, but what does that mean for the construction industry?
Rising costs and shortages of labour
Energy prices, materials, transport and import costs are continuing to soar, not to mention the cost of living – exacerbated once again by mortgage repayments doubling in some cases – and the impact that will have on recruiting staff.
Unlike other sectors, the construction industry doesn’t have the luxury of leveraging technology to automate processes and fill gaps left by staff shortages. The building of roads, houses, and other construction projects, quite simply, relies on a steady supply of labour.
The Purchasing Managers Index (PMI) figures for August 2022 suggest that the construction sector may already be in a recession, and there are calls for the government to provide targeted financial support to stop contractors from entering administration in Q4 of this year.
As a result, companies are increasing their fees in relation to rising costs, but there will be consequences.
Restricted access to funding
Many businesses took advantage of the Coronavirus Business Interruption Loan Scheme and deferred tax liability to ride out the pandemic. But just as they’ve returned to pre-pandemic levels of business they’ve been hit by soaring inflation that increases the risk of cash flow issues.
Increasing costs to customers isn’t enough to save struggling companies when the whole country is impacted by the same issues, and there are global shockwaves still being felt from both the pandemic and war in Ukraine.
The result is that more projects are being cancelled or scaled down, and when it comes to securing funding, lenders are reluctant to take risks. Without funding in place, the number of new projects in the UK is set to shrink even further – which is not good news at a time when the country is already building fewer new homes than needed.
Future-proofing your business
While the sector waits to see if its calls for government support will be answered, there is help available to prevent viable businesses from falling into administration. Refinancing packages will enable them to retain access to cash and funding options. Debt restructuring and refinance, consensual negotiations with creditors and selling off non-core assets can also provide some relief, along with Company Voluntary Arrangements and speeding up mergers and acquisitions.
Some companies are future-proofing by acquiring underperforming businesses to help plug the gaps around material supplies, supply chain issues and labour.
Get in touch
As we continue to live in unprecedented times, the key is to be proactive and act quickly rather than trying to wait out the storm.
Working with a construction cost consultant will ensure your projects are as future-proofed as possible and help you identify and minimise unnecessary risks. To find out more about how we can support your business, get in touch today on 020 7096 8235.