Construction sector focussed on cost control as growth outlook remains subdued in second half of the year

Despite a modest pickup this quarter, the growth outlook for businesses in the construction sector in the second half of the year has been relatively subdued in comparison to the first half.

In Q1, 39% of small businesses predicted either significant or modest growth in the next three months. Since then, this figure dropped to a two-year low of 19% in Q3’22, before recovering slightly to 29% in Q4’22.

Meanwhile, the proportion of construction businesses anticipating a period of either modest or significant decline has risen slightly in the second part of the year from a low of 10% in Q2’22 to 15% this quarter.

Outlook for the next three months of small businesses in construction sector

Battening down the hatches

Reflecting this less confident outlook, the ways companies were looking to grow their businesses in the next six months has focused on cost controls. Compared with the start of the year (Q1’22) there has been a significant rise in the proportion of companies focused on keeping fixed costs down (from 30% in Q1’22 to 41% in Q3’22), or being strict about getting paid on time (from 15% in Q1 to 33% in Q3).

Over the same time period, the proportion of construction businesses actively investing has fallen. For example, the proportion of small businesses investing in new equipment went from 20% in Q1 to 12% in Q3. Similarly, the proportion hiring more people went from 24% in Q1 to 11% in Q3.

Staffing shortages dominate list of worries

Asking business leaders about the problems they face that were keeping them awake at night, the areas where construction businesses stood out from other sectors included concerns about general economic volatility (40% versus 36% average), bad debts (27% versus 10% average) and the public health impact of Covid on their business (30% vs 25% average).

Also notable were the concerns about skill gaps and staff shortages. Here, around a fifth (21%) of small business leaders had concerns about this in comparison to 17% of small business leaders nationally. Similarly, asking about the challenges they face that were holding their business back, again skilled labour was one area of particular concern for construction bosses. Here, 28% said they were held back because of the cost of skilled labour in comparison to 16% on average. Other major concerns included Brexit and the economic impact on their business (23%) and general market uncertainty (30%).

Focus on UK markets as business potential from Europe falls

Looking at the global regions where businesses in the construction sector were looking for growth opportunities, comparing the answers from Q3 2021 to Q3 2022 there has been a notable slide in the proportion of businesses looking to Europe and a subsequent increase in the proportion of businesses focused solely on the UK.

In 2021, one in six businesses were looking to the EU for potential growth opportunities. By 2022, this figure had fallen 13% to 4%. Meanwhile, four European countries not in the EU, the same trend was seen (10% in 2021 falling to 3% in 2022).

Similarly, other drops were seen in Japan, East Asia and the Pacific (8% falling to 0%) and in the Middle East (7% to 2%).

By contrast, the proportion of businesses looking to the UK for growth opportunities increased from 87% to 94% in 2022.

Areas where Construction small businesses see areas of potential growth

Two thirds reliant on finance for plans

The results showed that 63% of construction small businesses had plans that would require finance this year. Top of the list, 22% planned to invest in new vehicles (compared with 11% of all small businesses on average). One in six (17%) said they were using finance to help run a marketing or advertising campaign, while one and seven (14%) are using finance to increase the headcount. Again, cash flow issues featured here as well with one in nine (11%) small businesses requiring finance in order to pay suppliers on time.

Two thirds of construction businesses working on sustainability plans

Small businesses in the construction sector are more likely than the national average to be working on a sustainability plan. The results showed that 61% of construction small businesses have a plan to improve their sustainability over the next 12 months, compared with 56% average.

The main areas included looking at improving sustainable profitability of the business (32%), invest in staff education and training on areas of sustainability (33%) and cutting back on waste and packaging (22%).

Construction businesses were more likely than average to make use of solar or renewable energy within their business (15% vs 10% average), or using electric or green hydrogen vehicles (14% versus 11% average).

Businesses in this sector are more likely than average to discuss green issues at senior management meetings (25% versus 17%). A fifth (20%) have a staff suggestions box while 15% have green initiatives for staff such as bike and car shares.

Notes to editors

All figures, unless otherwise stated, are from YouGov Plc.  Total sample size was 1140 Senior Decision Makers in Small Businesses. The survey was carried out online. The figures have been weighted and are representative of all Senior Decision Makers in Small Businesses

Dates of the fieldwork for the research used in this report:

Further tables