Following the dramatic turnaround the construction industry experienced in Q1 of 2010, the last three months have become more challenging for the sector with productivity falling in Q2, according to the latest Bibby Financial Services Business Factors Index.
The Index showed at the end of Q1 this year that the industry experienced its highest reading since it began in July 2007. However, there has been a significant fall in prosperity for the construction sector in both April and May, before activity stabilised in June.

The Index for the construction industry shows that:

Nearly one in three (32%) large construction companies feel conditions are tough and they are only just surviving, with an additional 13% stating they have had to make cuts to the business in order to continue trading

Furthermore, more than two thirds (69%) of respondents from large construction firms feel that conditions have deteriorated over the last 12 months

A significant 41% of large construction firms believe it will be three years until the economy fully recovers, indicating there are still difficulties facing the industry and the emergency Budget has done nothing to improve confidence

However, despite the deterioration in conditions for the sector, smaller construction firms appear to be faring slightly better than larger businesses, those with a turnover of more than £1million, and have been less affected by challenges facing the industry, such as the recently announced public sector cuts:

Only 21% of small firms state that conditions are tough, with 12% going so far as to say that their business is doing well, having actually benefited from the recession, or has never been on better shape

Furthermore, no large businesses display this view, highlighting that there are significant differences in business performance depending on the size of a firm

However, despite the fact that smaller firms appear to be coping better than larger businesses, they are still aware of the fragility of the economy, with 41% claiming trading conditions have deteriorated compared with a year ago, a rise of 10% since Q1

'During the last three months business has picked up for us,' said Jayne Hughes of Hughes Exploration & Environmental. 'We are seeing an increase in the number of new orders, and compared with the same time last year things are going well. We were affected last year because the larger construction companies were heavily hit by cuts from the recession, and we did feel some knock-on effects of this. However, being a niche business we are generally less directly affected than the bigger construction firms because public sector spending does not really target the renewable sector.

'Over the next six months to a year, we are trying to grow the business. It would have been good to do so last year but times were hard and as we are now in a better position we are able to look ahead with optimism,' she added.

'The latest figures from the Index have unfortunately not been as encouraging as they were at the end of Q1,' admitted Jason Heath, construction specialist at Bibby Financial Services. 'The last three months have seen a fall from the record high level of productivity the industry experienced in March. However, some positives can be taken from the results with output still matching the levels seen before the recession.

'Understandably, construction firms are expressing some concerns about the state of the sector and the chances of a full recovery. The future remains unpredictable, and in the knowledge that public sector spending constitutes around 40% of the industry's turnover, the likelihood is that the recently announced Budget cuts will have a continuing negative effect on some businesses. It therefore remains important for construction firms to ensure that in this uncertain climate they are able to stabilise their firm with a reliable source of finance, or where necessary invest funds where there is opportunity for growth.'

The Business Factors Index, compiled by specialist invoice finance provider Bibby Financial Services, tracks movements in small business turnover. For the first time since the start of the report in July 2007, the Business Factors Index also includes qualitative data from a number of the UK's large organisations, including construction firms, with a turnover of £1million or more. The trends derived from this data have been collated alongside the results of a series of interviews conducted with more than 500 business owners, from a range of businesses across the UK, to produce a comprehensive overview of how UK firms are faring in the current climate.