In today’s news, we will look into the faltering economy of the United Kingdom is being propped up by the construction industry. Meanwhile, there will not be any letup in the rate of insolvencies in the near future. Furthermore, a Polish Shipyard Is Taking Part in the Construction of a UK Type 31 Building of Ships in Frigates. On top of that, vacancies in the construction industry have dropped by 67% to record lows.
While other industries falter, building supports the UK economy
Only a strong construction industry performance prevented Britain from a winter depression, which is unlikely to revive the economy.
In February, Britain’s GDP returned to pre-pandemic levels, but industrial growth implies underlying fragility.
This week’s IMF predictions placed Britain last among the world’s main economies in 2023, with a 0.3% shrinkage, or 0.7% per capita, predicted.
Britain’s massive services industry—80% of economic output—has yet to recover.
Public worker strikes in February affected productivity in health, transport, and education, but the data suggest sector-wide issues.
Banking output is 6% below pre-pandemic levels. Inflation over 10% hurts consumer demand, making things worse for shops.
Manufacturing, 10% of Britain’s economy, rose after COVID-19 lockdowns but has since slowed, limiting recent economic development.
That leaves construction, with 6% of the economy, as the single large engine of growth during the last six months, an uncommon occurrence.
Construction output is more than 7% above its 2019 average, making it the best-performing major sector in recent years.
Construction employs one in 20 people and drives the economy. It also draws imports and labor at the expense of higher-productivity and export-intensive sectors.
Britain’s current economic reliance on construction conflicts with finance minister Jeremy Hunt’s ambition of developing an internationally successful, highly productive “next Silicon Valley” economy.
According to Marc Ostwald, chief economist at ADM Investment Services, a brokerage, British infrastructure construction is rising, as is green energy project development in other European countries.
“But then you’re looking at the UK and saying: well, that’s effectively an 80% services economy and it’s not really getting any post-COVID traction,” Ostwald said.
“Economic fragility underlies that.”
Insolvencies won’t stop soon
Original Source: Insolvencies will not slow down any time soon
Pablo Cristi Worm warns that construction insolvencies may rise in 2022 while avoiding a recession.
The UK narrowly escaped a recession in 2022 according to March 2023 GDP statistics. The economy is still struggling. High inflation, rising interest rates, and weak demand mean construction must prepare for more insolvencies regardless of whether the country faces a technical recession.
In recessions, cashflows plummet and enterprises lack the capital to meet rising demand.
Covid-19 reversed this trend. Between Q1 and Q2 2020, economic activity plummeted by nearly a fifth, although business failures dropped to 1989 levels.
Fiscal incentives and emergency measures that stabilized the economy fueled this disparity. This just delayed the inevitable. Once aid ended in 2021 Q1, insolvencies rose. In 2022 Q4, 6,251 were reported, 1,112 from the construction industry.
This year’s interest rate hikes will continue the trend. Despite the support measures, insolvencies are projected to rise regardless of a UK recession.
Demand and investment are decreasing, and rising interest rates and expenses add pressure. This suggests that insolvencies may not drop for some time.
Construction insolvencies typically follow the economy, albeit magnified. The economy is struggling with rising materials, energy, and labor costs, supply chain issues, and interest rates. Construction is vulnerable due to its high concentration of small and medium firms (SMEs).
SMEs are more vulnerable to economic change due to low liquidity and fewer stable work pipelines, making it harder to get suitable financing. Red Flag Warning warned earlier this year that over 100 industry firms could fail each week in 2023.
So, construction must anticipate rising insolvency. Early contractor and supplier engagement helps reduce insolvencies.
This can improve pipeline visibility, giving time to adjust resources to demand. Clients should collaborate on contract risk allocation to keep the supply chain sustainable.
There are certainly obstacles, but adopting strategies to prevent insolvencies now will assist the business deliver on investment now and when the economy grows.
Polish Shipyard Joins UK Type 31 Frigate Building
Original Source: Polish Shipyard Participates In UK Type 31 Frigate Construction
The Telegraph reported that a Polish shipyard is building a Royal Navy Type 31 Inspiration-class frigate. The news isn’t new, but the venture’s parties haven’t commented yet.
Babcock International Group and PGZ Naval Shipyard signed the contract to build the Type 31 Inspiration-class frigate’s hull section on December 20, 2022. The two businesses couldn’t publish the contract without London’s agreement because the ship’s final receiver is the UK Ministry of Defence (MoD). When the deal was revealed in February before the Polish Parliament’s Maritime Affairs and Inland Navigation Committee, Navy News learned of it by chance.
The Type 31 frigates are based on the Arrowhead 140 parent design of the Miecznik-class frigates, which will be built for the Polish Navy by PGZ Stocznia Wojenna (PGZ SW) and Remontowa Shipyard, backed by Babcock International Group.
The 2017 National Shipbuilding Strategy ordered five Type 31 Inspiration-class frigates, although the UK MoD did not disclose the contract issue. The contract was handed to Babcock, a smaller and less experienced business, instead of BAE Systems, which has a monopoly on designing and building surface ships and submarines for the Royal Navy. The goal was to revive the shipbuilding industry and create jobs in the UK. Thus stating that certain work would be done in Poland rather than Britain is against British government policy.
Not unexpectedly, Babcock’s representatives claim that Polish participation is minimal and that the venture aims to help implement the Arrowhead 140 derivative Miecznik program. Polish hull and superstructure sections were not specified. The Polish shipyard’s “small percentage share” of manufacturing does not necessarily entail a small number of sections because the combat system—sensor and weapon systems—is a significant part of a ship’s final pricing. The portion is less than 1% of the £1.25 billion contract for five Type 31 frigates.
HMS Active, the second ship-in-class and first serially constructed Type 31 vessel, began construction in January this year with Polish components, according to The Telegraph. The British explanation that PGZ SW was commissioned for hull construction on a Royal Navy frigate to instruct Polish shipbuilders appears unconvincing. They won’t need special instruction. PGZ SW may be commissioning new equipment and machine tools for the Miecznika program as part of its renovation. The order may also test the Polish shipyard before Babcock’s export contract agreements.
Construction redundancies plummet 67%
Original Source: Construction redundancies fall by 67% to record lows
The latest ONS UK labor market numbers show that construction redundancies plummeted by over two thirds, reaching the joint lowest rate since 2009.
The Bureau of National Statistics reported that construction redundancies reduced 67% between December 2022 and February 2023.
In December 2022 to February 2023, the UK’s all-industry employment rate was 75.8%, up 0.2 percentage points. Part-time and self-employed individuals drove this ONS-reported employment rise.
Vacancies remained steady, indicating job filling.
Construction, manufacturing, water supply, sewerage, waste and remediation operations, and real estate services all had 2.6 vacancies per 100 employee employment, identical to December 2022–February 2023.
Dominick Sandford, managing director of IronmongeryDirect and ElectricalDirect, said: “The newest data reveals there were 41,000 postings between January and March, which is the same as the previous quarter and down 13% year-on-year (47,000). This means that, unlike in 2022, employers have been able to fill their advertised posts.
Job security benefits people financially and mentally. Hopefully this fresh data continues to show favorable trends and the building industry has a good summer.”
Low construction redundancies indicate stability.
Redundancies declined by two thirds (67%) over winter, from 9,000 to 3,000. (December-February). The latest figure is the joint lowest since 2009 and 40% lower than this time last year (5,000), indicating a great start to 2023 for the sector.
“In contrast, across all UK industries, redundancies are up 20% year-on-year, already at 90,000. Our sector has maintained some stability despite the changing national economic landscape.”
Potential construction redundancies fell by 65%.
“The future seems excellent too. March had 690 probable redundancies, down from 1,973 in February. This 65% drop might reduce job losses in the warmer months.
Summary of today’s construction news
Overall, we discussed how the building industry saved Britain from a winter slump, but it won’t be enough to resuscitate the economy. Britain’s gross domestic product reached its pre-pandemic level in February, but the strength of the manufacturing sector belies a more precarious economic situation.
Meanwhile, according to GDP data from March 2023, the United Kingdom just avoided a recession in 2022. The economy remains weak. Whether or not the economy enters a technical recession, high inflation, rising interest rates, and sluggish demand indicate the construction industry should plan for additional insolvencies.
Additionally, according to The Telegraph, a Polish shipyard is constructing a Type 31 Inspiration-class frigate for the Royal Navy. The news has been out for some time, but no one involved in the venture has commented on it.
Moreover, the newest data from the Office for National Statistics in the United Kingdom shows that construction layoffs have dropped by more than two-thirds, to the joint lowest rate since 2009. Between December 2022 and February 2023, the number of redundant construction workers dropped by 67%, according to the Bureau of National Statistics.