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Construction industry 'optimistic' about 2011

Published:  29 December, 2010

UK: Construction businesses expect to see improvements in turnover and gross profits  in 2011, according to the latest ICAEW/Grant Thornton UK Business Confidence Monitor from the business adviser.

BCM, which tracks the confidence levels of UK finance and business professionals, said the Confidence Index of businesses in the construction sector fell by 1.3 points in Q4 to 6.3 points compared to the 7.6 points seen in Q3.

This is the lowest Confidence Index for the sector seen so far this year and is a significant decline from the considerably more buoyant 24.0 points seen in Q1 of 2010.

In Q4, only 47% of businesses in the construction sector (down from 51% in Q3) are more confident in the economic prospects facing their organisation over the next 12 months.

The proportion that are less confident about the coming year is relatively unchanged at 30% in Q4 compared to 31% in the last quarter.

The gloomy outlook of construction businesses may be attributed to factors such as the impact of a floundering housing market, cuts in capital spending and reduced funding for housing and regeneration announced in the Spending Review. The same applies to tight bank credit conditions, which continues to make access to capital difficult.

Despite the decline in confidence, construction firms expect some improvements to their business performance over the next year after a difficult 12 months in 2010. Turnover is expected to increase by 2.4% after falling by 3.0% over the last 12 months.

Gross profit is expected to rise by 2.2% after seeing a 4.2% fall over the last year.

Phil Westerman, construction partner at Grant Thornton, said: "With continued restricted access to capital, many construction businesses will be experiencing cashflow problems which won't be helped by demand in the sector seeing some shrinkage following the Government's Spending Review and stagnant housing conditions.

"Contractors in some parts of the country will  not expect to benefit from work stemming from high-profile infrastructure projects such as Crossrail and the London Underground upgrades, which might add to the mood of pessimism.

"The construction sector does however predict some improvement for turnover and profits through 2011 as more clarity over the economic climate and the impact of the Government's spending cuts emerges," said Mr Westerman.

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