Chart of the Day: Construction Sector Confidence

Last week we had lots of coverage and comment on the retreat from mortgage lending by many of the UK’s biggest home finance providers. The essence of the problem is that the lenders are just not as willing to offer loans to people as they were. Profit margins have been squeezed as the wholesale cost of money has risen, and some mortgage providers have effectively left the market for the time being. This is making life very difficult for people needing to get a first-time loan or looking to renew their mortgage deals when fixed rate agreements reach an end.

The result is a sharp fall in the number of property transactions that are falling through because of problems in finding the required level of funding.

But what about the state of life at the sharp end for bricks and mortar businesses in the construction industry. How are they being affected?

One gauge is the monthly confidence index (seasonally adjusted) from an industry that contributes around 6 per cent of GDP. And the latest snapshot is that order books are declining, confidence is ebbing away and there are signs that jobs are at risk as the industry battens down the hatches ahead of a housing recession. Price expectations are holding up fairly well although they too have softened since the start of 2007.

We have been here before – note the decline in sentiment when the UK housing sector slowed down quite sharply in 2005 – but the likely severity of the downturn in property will likely lead to a further downgrading of construction sector confidence going forward.

PowerPoint Chart
Construction_Sector_Confidence.ppt