The effect of recession on the construction industry

by The Times 100 on Wednesday 7th January, 2009

In the news: The effect of recession on the construction industry

The effects of the recession are affecting all aspects of the UK national economy. In December 2008, the construction sector shrank at its fastest pace since records began. The most considerable decline was registered in house building, while the civil engineering and commercial sub-sectors also fell at record rates during that month. This has led to expectations that the Bank of England will cut the interest rate following its two-day meeting during the week of 5th January 2009 to reduce borrowing costs to the lowest level in its 314-year history. A cut of at least a half-point to 1.5% is anticipated. (Times Online, 5 January 2009)

As well as the decline in the housing construction sector, the housing market has also slumped. According to the Halifax, house prices fell 16.2% in 2008, the biggest annual decline since it began keeping records in 1983. This has made buying a home more affordable when set against earnings than at any time since April 2003. However, getting a mortgage is difficult for many. Data from the Bank of England showed the number of mortgage approvals fell to 27,000 in November 2008, representing at least a nine-year low (BBC News, 2 January 2009).

Roy Ayliffe, Director of Professional Practice at the Chartered Institute of Purchasing and Supply, said: Once again, the housing sector bore the brunt of the crisis as purchasing managers reported significant reductions in new business. Amidst a climate of doom and gloom, firms were forced to axe more jobs in preparation for what is set to be another year of trouble and turmoil. (Times Online, 5 January 2009)

The UK government has plans for public spending and it is hoped that these will include major construction projects, such as roads, schools and other public buildings. This would help the construction industry and those companies that supply the construction industry to ensure continued employment for many.

Businesses in the construction industry therefore need to ensure they remain competitive during this difficult economic climate. At the same time, they need to prepare the business to be able to take advantage of any future upturn in the market.

Look at The Times 100 case study on CEMEX. CEMEX is one of the world's largest building materials companies, operating in more than 50 countries. It is a leading supplier of aggregates (sand, gravel and crushed rock), cement and ready-mixed concrete. It also produces asphalt, concrete blocks and mortar and has a significant share of those markets. CEMEX customers range from multinational building companies to individuals building their own homes. It plays a key role in supporting the UK roads and buildings infrastructure.

The case study examines how CEMEX locates and carries out its operations in a sustainable way. Sustainable means behaving in a socially, economically and environmentally responsible way to safeguard the needs of future generations A focus on sustainability can give a business competitive advantage. CEMEX has to balance its impact on the environment against its need to achieve good financial performance in all economic conditions.

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