Lloyds on the impact of spending cuts

Published:  20 August, 2010

UK: Figures released this week reveal a drop in construction companies reporting expanding workloads, highlighting the uncertainty in the house building industry ahead of the government spending review in the autumn.

Chris Spedding, relationship director for house building and building materials at Lloyds Banking Group, commented: “The UK construction industry continues to face difficult times and the coalition government’s announcements on cutbacks in areas such as the Building Schools for the Future programme are already having an impact all the way down the construction supply chain. The Government’s October spending review is fast approaching and while most companies in the sector will welcome a greater level of clarity about where and when cuts will happen, there is a general consensus that there will be a far smaller amount of public sector contracts for tender and that the repercussions in terms of contract pipeline will be immediate.

“The hope remains that private sector demand will offset the inevitable drop off in public sector construction, and there are some positive indicators, such as unemployment trends and business confidence surveys, that suggest the UK private sector is on the track to recovery: Lloyds TSB Commercial’s latest Business in Britain report concludes that business confidence among mid-sized companies is higher now than at any point in the last three years. However, the Report also highlights that confidence is greatest in businesses that export, and that fundamental concerns around domestic demand, the critical driver of the UK private sector construction output, still remain. We have also seen evidence of this weaker domestic demand in a cooling of sentiment around the UK residential construction market in Q3, following a relatively positive Q2.

“Coalition politicians have warned of a ‘choppy’ recovery; unless we see a real surge in private sector demand, the level of cuts expected to be unveiled by the government in October could mean that UK construction industry struggles to find its feet for another few months yet.”

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