With the UK set to enter a recession this year, the construction industry must brace itself. According to forecasts published by the Construction Products Association, construction output is set to fall by nearly 4% in 2023. Rampant inflation, economic uncertainty and soaring mortgage rates have all combined to reduce demand for new housing, repairs and home improvements as consumers tighten their belts.
In anticipation of falling demand, some construction companies are scaling back. Housebuilder Barratt Developments announced on 11 January that it would be cutting back its activity in order to adjust to current market conditions. Among other actions, the company has put a freeze on new hires, cut back on land purchases and scrapped its building plans for over 3,000 land plots.
Those who look ahead will be in the best position to succeed
In an article recently published in Construction Management, Kris Hudson, an economist and associate director at global consultancy business Turner & Townsend, says that those construction firms who focus on the long term will be best placed to deliver once current economic difficulties have eased.
“Looking ahead,” he concluded, “when recession and the higher inflationary environment eventually subside, the clients and contractors who will be best placed to deliver will be those who looked beyond the immediate and focused on building long-term capacity, skills and supply chain relationships.”
Learning from previous crises
According to a McKinsey report from May 2020, construction companies that reacted quickly and invested for the future were those that came through the 2008 global financial crisis in the best possible shape. Similarly, the report predicted, those organisations who “think through the moves they can make today to come out ahead later” would be best placed to survive the coronavirus pandemic.
The World Economic Forum also published research in 2021 examining the top five traits of those businesses who were most resilient to the impact of the pandemic. Whilst the current downturn is not, like COVID, an unprecedented event set to shut down huge swathes of the economy overnight, there are still valuable lessons to learn from businesses who were more successful in navigating the crisis. According to the report, these businesses were:
- Prepared – businesses who had some sort of contingency planned were more prepared for disruption.
- Adaptable – those who changed their way of working and quickly adapted to new circumstances were more successful.
- Collaborative – companies where colleagues collaborated with each other to find solutions were more resilient during the pandemic.
- Trustworthy – resilient businesses focused on improving communication with clients and stakeholders.
- Responsible – companies that were attentive to their stakeholders’ needs were more likely to be able to adapt to disruptive events.
Don’t pull back on insurance
In times of recession, those looking to cut costs – and particularly those working in industries with slim profit margins, like construction – may see their insurance premiums as a dispensable expense. In fact, these are the times when comprehensive insurance coverage is most vital. Brokers looking to help their construction clients through this difficult period should look to educate them about the importance of keeping up insurance payments and work with them to find suitable solutions.
At Focus, we’re always here to help our brokers with the challenges that they and their clients are facing. To chat with us about our range of bespoke construction products, please call us on 0345 345 0777 or email firstname.lastname@example.org.