The sharp decline in house building experienced since the start of the year has now translated into a dramatic fall in sales in the second quarter of 2008 for product manufacturers, according to the latest Industry Barometer from Ernst and Young and the Construction Products Association.
This fall has delivered the lowest score since the barometer was launched more than two years ago and the first time it has recorded below the 'no-change' mark of 50.

As a consequence the barometer reading for Q2 records a score of just 41, almost half the figure recorded during the same quarter a year ago.

Manufacturers of heavy side products (such as bricks and blocks) have experienced the sharpest slowdown, recording a score of just 25, almost half the score from the previous quarter and one third or the score from two quarters ago. Furthermore their estimate of sales for the next quarter is predicted to be even lower.

The light side manufactures are less gloomy as spending in this sector is currently considerably higher, although the expectations are that sales will decline as the economic slowdown impacts upon the labour market and consumer spending.

'The current economic slowdown is beginning to impact across the industry. Difficult loan conditions both for companies and individuals have led to a 25% fall in housing starts in the private sector from just a year ago,' said Dr Noble Francis, economics director for the Construction Products Association.

'However there are still some bright spots in the industry. Infrastructure spending is still doing well as is the Building Schools for the Future programme. What is important is that the government continues to deliver its capital spending plans as promised. If the government cuts back on this, then the concern across the industry will be much more widely spread,' he added.

'Quarter two of 2008 has undoubtedly been a testing time for the UK's construction products industry. Sales have fallen sharply, confidence remains depressed, and activity in the sector has reached a two year low,' believed Dominic McAra, a director in Ernst & Young's Building Products team.

'As well as the documented difficulties in the housing market, the fallout of the credit crunch is making it increasingly difficult for construction companies to secure appropriate funding for projects. The knock-on effect for both heavy side and light side product manufacturers has been a significant slowdown in demand.

'With further difficult news expected this week, with the release of trading statements from a number of the UK's major house builders and construction companies, there is a real concern that the industry's slowdown will continue to gather pace.

'In order to survive the current economic storm, businesses will need to demonstrate careful management of their sales profiles to minimise any risk of bad debts. In a sector where liquidity is becoming restricted, construction products companies will need to ensure their own funding is sufficient to last them through the difficult times.'