What the looming recession means for construction and how the industry leaders can respond

October 4, 2022

With over 20 years of experience in the industry, Des Duddy, Joint Managing Director of Protrade, analyses the current state of the construction industry and what it can learn from the Great Recession which hit back in 2008 as the UK economy continues to struggle under the weight of inflation…

We are all the same at the end of a calendar year; sitting back, taking stock, picking the bones of the year that’s just gone. Alongside that, we’re also thinking about the coming year, trying to get ahead of the trends and the potential new opportunities.

The thing is, though, at the end of 2021, very few could have foreseen what would unfold this year, particularly with what we’re seeing in Ukraine.

While the biggest effect of Russia’s actions has been felt by those living and breathing that invasion, the knock-on effect has been seismic across the world and has changed the picture significantly in multiple areas – adding another layer on top of the impact that was felt from the COVID-19 pandemic and Brexit.

At the beginning of 2022, we were starting to see the construction industry climb back to its feet, with projects getting up off the ground and moving again. And while things are good right now, it’s unlikely that the sector will return to the pre-pandemic levels that were predicted for 2023 – not until the dire situation in Ukraine is resolved, at least.

We’re all waiting with bated breath to see what happens next out there because, after more than a decade of no major distractions within the construction industry, it feels like we have been hit with one thing after another over the last few years.

The next thing to add to that is the possibility of the UK being placed under a cloud of recession for the first time since 2008 as inflation, which has hit a 40-year high, continues to weigh down heavily on the nation.

Learning from the lessons of the Great Recession of 2008

Google data shows concern about the looming recession rising month-on-month.

At the time of writing, there had been approximately 44,000 searches in the UK for the term ‘recession’ over the last month. Beyond that, the last 12 months have seen a:

• 19,450% average growth in searches for ‘how to prepare for a recession’
• 16,350% average growth in searches for ‘what does the recession mean for me’
• 11,150% average growth in searches for ‘recession proof stocks’

We know increased energy bills are coming but until we all get that first huge bill from the energy company land in our hands, no one really knows how hard it is going to be. And similar to that, it’s only when a recession is officially confirmed that we will see people take action. We’re not at that junction just yet.

So, what can we learn from the last recession the UK faced 14 years ago?

In 2008, our business was doing well and the market was buoyant. And, seemingly overnight, the market, not just construction, hit a brick wall and crashed. As a business, we saw a significant downturn, the phones stopped ringing, customers no longer had the same requirements, and some of our larger customers didn’t survive at all.

While that’s not a stage construction is at just yet, the downturn, caused by inflation across the board, has started to seep into the pores.

Resilience and having quality products on the shelves will be the difference during this time

So, having been through it once, how do businesses navigate something as scary as a looming recession that could land on all of us at a moment’s notice?

Remain strong.

What we see during recessions is that the strong businesses get stronger and the ones that don’t react to the changing market and what’s happening around them struggle to survive.

The best businesses are not forced into making changes. The best naturally change just to improve. As businesses, we have to always be mindful of cash and costs but it’s those that still have lots of great stock on the shelves that are in the best position going into what is set to be a difficult winter.

Having cash in the bank and nothing to sell is a perilous position to be in. Inflation is making everything far more expensive and, therefore, providing you have got enough in the bank to pay your outgoings, businesses need to be investing in stock that generates revenue and profit.

The construction industry is needed right now and the recession will not change that

As mentioned, while we’re starting to see a downturn, as a country, we’re not in the same position as we were back in 2008. Recession or no recession, we still need to build.

The biggest issue facing construction in this country right now is that we can’t build things quickly or efficiently enough to combat the ongoing housing issue. As a result, £1.5 billion worth of contracts were recently issued to modular builders.

That’s the way the industry is going, taking inspiration from huge brands like McDonald’s who turned to modular methods to erect a number of their restaurants to cut down construction time, cut down their construction expenditure, and earn money faster.

Modular is far more advanced than it was in 2008 and that may well go towards helping the industry navigate the upcoming recession.

What we know is that off-site manufacturing is much more efficient and provides more accountability and the ability to control costs. Its reputation, one which was once tarred, has grown significantly because of the commercial gains and competitive edge it delivers, alongside the massive increase in quality seen in recent years.

Regardless, construction will need Government support

As business leaders, we’re all just waiting to see what support will be implemented for businesses, as we have witnessed with households.

Regardless, costs are going to increase significantly for a lot of companies within the construction sector industry. The wheels of the industry still need to turn, and many companies may require government intervention to continue manufacturing and producing essential goods.

There were a lot of companies bailed out during COVID. This crisis is going to be very similar to that. 

Using Germany as an example for a moment, that country is one of the biggest manufacturers and exporters in the world and a lot of its biggest companies are asking for help from their government to combat the ongoing challenges caused by inflation.

If manufacturing ceases to exist, a large number become unemployed. Without a job, no amount of support – such as an energy cap – will help those affected. In short, those poor individuals will find themselves in big, big trouble.

We’re all going to be resilient over the next 12 months

There’s a lot of doom and gloom about at the moment but what people are very good at doing is dealing with that scenario and getting on with it. All of us will have our resilience tested over the coming months.

Food prices are going up but it doesn’t mean we’re going to stop eating. Construction, despite the challenges ahead, will still go on. Projects may well get delayed and materials become more expensive but they will still be procured.

For us, being able to service our customers’ requirements throughout this difficult period, is our number one priority.

The construction industry still represents a significant chunk of the UK’s economy and although there may be a retraction, it certainly will not come to a grinding halt. We can’t ignore what seems to be inevitable, but we need to remain optimistic and concentrate on the things we can directly influence.

This press release was issued on behalf of Protrade by Hallam. For further information, please contact Tom Bestwick at tom.bestwick@hallam.co.uk.

All images have been downloaded and approved for editorial use by Shutterstock and Unsplash.