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Record Drop in Construction Caused by ‘Beast from the East’

Record Drop in Construction Caused by ‘Beast from the East’

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Britain’s construction sector experienced a downturn due to the ‘Beast from the East’ snowstorm that hit the UK in late February and early March, with readings for February and March showing a drop from 51.4 to 47.0 on the IHS Markit Purchasing Managers’ Index (PMI).

According to Tim Moore, associate director at IHS Markit, “The construction sector continued to experience subdued business conditions during March, but snow-related disruption was a key factor.”

Duncan Brock of the Chartered Institute of Procurement and Supply said of the weather-related decline:

“It’s a few years since the UK experienced such bad weather in March and it’s obvious that supply chains were woefully unprepared to deal with the disruption.”

The freezing weather conditions are thought to have affected construction more severely than any other sector – likely due to the outdoor nature of much construction work, which overall accounts for 6% of Britain’s economic growth.

According to UK workplace regulations, indoor working conditions must be a minimum temperature of 16C, or 13C if rigorous physical activity is required.

Outdoors however, where it would be “impractical to maintain those temperatures,” there is no set legal minimum temperature of workplace, although employers have a duty of care to prevent employees from working under unsafe or unhealthy conditions.

In light of the PMI readings, March 2018 marked the fastest monthly decrease in construction activity since the effects of the EU referendum result were felt in July 2016. The results reflect the most significant one-month depression in commercial construction since 2009, whilst also placing civil engineering activity at the most rapid rate of decline in 5 years. In addition, the 4.4 point decrease signals a move below the 50.0 mark on the index, which represents a shift from expansion to contraction of industry growth.

Ongoing decline in construction sector

March’s results come amidst a broadly challenging time for the UK construction sector, which declined in output continuously through the last three quarters of 2017.

Brexit has been cited as a potential cause of decline, with firms reporting a reduced demand for work.

There are signs that this may have improved in the first quarter of 2018 – with construction companies reporting accelerating rates of hiring this March and pitching optimism at the highest levels in 9 months despite weather issues.

Indications show that inflation due to a fall in the value of the pound is dissipating, whilst costs in March rose at the lowest pace in 20 months.

However, experts regard these positive signs with caution.

Duncan Brock of the CIPS acknowledged that “March’s figures could be viewed as a temporary blip”, and warned: “The sector’s health remains in question, as we’re still a long way off seeing it operate the way it has over the last year.”

Growth in Birmingham and Manchester is a “timely boost”

Despite uncertainty over Brexit, many industry experts have expressed confidence in Britain’s ability to continue attracting new commercial development contracts from major international corporations, thanks to the country’s world-class financial and legal services.

Chancellor of the Exchequer Philip Hammond said in the Spring Statement this March that he was at his “most positively Tigger-like” in contemplating Britain’s “unique strengths” and commercial prospects post-Brexit, stating: “Our legal system is the jurisdiction of choice for commerce. We host the world’s most global city, and its international finance and professional services capital.”

In addition, growth in cities beyond London is offering the UK commercial construction industry a cushion amidst the present fragility of Britain’s economy.

Lloyds Bank analyst Max Jones observes: “Growth in cities including Birmingham and Manchester is outpacing the wider UK economy, providing a timely boost for commercial contractors, and at least in part offsetting weakness elsewhere.”

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For more information construction and engineering legal matters, construction and engineering dispute resolution, project advice, procurement and standard construction and engineering contracts please contact Paul Brampton or another member of our construction and engineering team via email on construction@ibblaw.co.uk or call 03456 381381. Alternatively please visit https://www.ibblaw.co.uk/service/construction-and-engineering.