Investment is required to ride out the recession

Published:  24 May, 2012

Business opportunities still exist for merchants because plumbing and heating services remain a vital necessity for consumers. Ian Church, managing director of PTS, examines the sector and reports on his findings.

The UK economy continues to be unstable, with most homes having significantly less disposable income than in previous years.

Six months ago the UK economy was forecast to rise by 2.5%*. This was soon revised down to just 0.7%. Although this is positive in the minds of analysts, it is still a worry for all types of business.

This nervous climate has been supported by persistently high inflation and the rise in commodity prices which have made conditions difficult for both businesses and consumers.

The construction and housing market has strong ties to the plumbing and heating industry and has been one of the hardest hit sectors.

The Construction Products Association’s Industry Forecast estimates that the construction industry is set to fall 5.2% in by 2012 and remain subdued throughout 2013.

Work towards increasing housing stock has been slow off the mark in 2012 with the total number of site starts less than half that needed to meet demand.

There is some support on the horizon for public housing in the form of the Affordable Housing Programme with the construction of an anticipated 20 500 homes expected to be under way by 2015.

Private housing is however expected to see a 2% growth this year, but will perhaps have little positive effect on the business levels of independent heating and plumbing installers.

With 102 600 completions in 2011, the industry can look forward to a predicted 107 700 in 2013 and an increase to 132 700 in 2015.

This increase will hopefully provide a boost for the market, making it easy for buyers to get on the property ladder and aiding buyer confidence.

All of this would then have a knock- on effect for disposable income which supports investment in larger items such as new energy-efficient boilers rather than settling for short-term, ‘quick fix’ solutions to patch up old and failing systems.

Disposable household income continues to fall with everyone feeling the pinch from the increased price of everyday commodities such as food and fuel.

A drop in consumer confidence was reflected by Nationwide’s ‘consumer confidence index’, which recorded its lowest level, and shows the serious reduction in spending.

If this pattern continues, we can expect to see an impact on more expensive products such as boilers or items that can be considered a serious investment such as solar panels.

Therefore, the repair, maintenance and improvement market will continue to play a significant role for the plumbing industry although the output in the private sector is expected to be flat in 2012.

This makes any improvement in household finances and postponed 2011 work an important revenue stream.

In the public arena, 2013 looks less positive for repair and maintenance, but it is hoped that the Green Deal will push social landlords to make further investment after 2012.

If the renewable energy sector is to become more profitable for the plumbing and heating industry during this time of economic uncertainty, then proactive government policies are vital.

Currently, the Carbon Emissions Target (CERT) which will run until the end of 2012 continues to support sales of insulation in particular.

However, as with other areas of renewable technology, the amount of take-up required to make a real dent in the target hasn’t materialised.

If the CERT targets are to be met, two million homes will need to be insulated in 2012 which is a high number when you take into account that this is double the amount delivered annually for the last three years.

Further legislation such as the Green Deal will play its role, but an additional push is needed to not only make the carbon emission reduction targets achievable, but also to create a profitable revenue stream for installers.

Consumer confidence has also been greatly damaged by high unemployment rates which are set to rise to 2.8 million in 2012. This could potentially mean a higher percentage of workers looking to learn new skills and become self-employed.

Introductory plumbing courses remain popular and the industry must ensure skill levels are kept high.

PTS has recently partnered with training provider PPL, offering courses at its own centres, at local trade counters or on customer premises.

Experienced installers need to take advantage of these types of opportunities to remain competitive.

Ultimately, increasing pessimism about UK economic performance has greatly damaged consumer confidence and levels of disposable income.

Targeted government strategies are required if private housing is to be given the boost it needs and opportunities in growing markets such as renewables are to be taken advantage of.

Fortunately, the plumbing and heating industry is a strong one, with installers always in demand for central heating and plumbing systems faults.

For its future growth and security, the quick-fix solutions that have become more commonplace in the recession need to be supported by greater homeowner investment in new products and energy-efficient solutions.

This article first appeared in the April edition of Builders' Merchants News.

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