Construction Industry Recession – Information & Advice
The term recession can be defined as a period of general decline in business activity. During a term of nationwide recession, a reduction in production, selling and purchasing will be observed, along with a boost in general unemployment. Sometimes a recession will have a direct effect on a particular industry or geographical area. Based on previous terms of recession, an economic downturn brings the end of extended periods of inflation and can mean a reduction in product prices. The people most affected by recession are the employees that lose their jobs when businesses need to cut their expenditure.
The recent recession has affected all areas of the UK’s national economy. In December 2008, the construction sector diminished at its highest rate since records began. The biggest decline was recorded in house building, with the civil engineering and commercial sub-sectors also falling at record levels during that particular month. This meant that the Bank of England had to cut interest rates to reduce borrowing costs to the lowest level in its 314-year history.
The housing market has also been quite badly affected by the recent recession, with house prices falling, on average, 16.2% according to the Halifax bank. Although a decrease in house prices means that property has become more affordable for first time buyers, this has been offset by the increase in difficulty the recession has had on acquiring mortgages. In 2008, the Bank of England observed the biggest decrease in approved mortgages in 9 years at 27,000 approvals.
Putting all the confusing business terminology aside, the reason the construction industry has been affected so much is due to the tightening of purse strings, and therefore a reduction in demand for new construction projects. This is also the same reason why the housing industry has been hit. House prices have fallen because property owners have tried to encourage buyers by reducing their asking prices for properties.
For the reasons stated above, it is imperative that in the current financial environment, businesses in every industry continue to be competitive; though it is also important for businesses to be prepared, in every sense, for the forthcoming upturn that is inevitable in order to take full advantage of the situation.
To put everything into perspective, the fact that the sustainability of the construction industry is at risk in times of recession is no secret; and there will always be continuing employment, or more specifically, unemployment problems, as is the nature of the construction industry. The only way to help overcome these problems will be to expand. Having more assets and financial resources means that a business has more economic sustainability when fiscal downturns ensue.