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Construction: Industry update issue 2

Welcome to the Close Brothers Asset Finance update of the construction industry, where we highlight a wide range of issues relevant to SMEs in this industry.

Click here to view the Construction Industry Update in full size

The results are based on the Close Brothers Business Barometer, a quarterly survey of close to 1,000 SMEs across the UK conducted by specialist independent researcher, Kantar, on Close Brothers’ behalf.

Our last Business Barometer results were received just prior to the lockdown and reflect a very different world to the one we now find ourselves in, where no-one has escaped the impact of COVID-19.

Because of that, in this edition we instead focus on our newly-created Business Sentiment Index (BSI), which is a confidence tracker calculated based on business owners’:

  • Appetite for investment in their business in the coming 12 months
  • Access to finance and whether they’ve missed a business opportunity in the last 12 months due to a lack of available finance
  • Views about the UK’s economic outlook
  • Thoughts on their likely performance in the coming 12 months  

Each measure contributes 25% of the final BSI score.

We’ll analyse both the reasons for the current score but also take a look back to 2016 and see how the scores have fluctuated and the possible influences that caused them to go both up and down.

Business Sentiment Index

After four quarters of improvement in the construction industry’s BSI score, culminating in an all-time high figure of 36.75 in September 2019, it fell to a still very respectable 26.5 in January 2020. This followed an elongated period of economic stability and the tail end of political certainty, including the election and confirmation of the UK’s exit from the EU.

Then came COVID-19 and, unsurprisingly, the outlook changed almost 180 degrees, with the score falling to 7.25. Interestingly, this is not the lowest it’s been – that came in August 2017 as the elongated ‘soft’ Brexit uncertainty continued to impact the economy, culminating in a low of 6.75.

Sentiment in the construction industry typically tracks higher than the UK average but is prone to sharp swings in sentiment – both up and down – because the industry is more affected by short-term issues than some other industries.  

Unpicking the data

Appetite for investment

Starting with ‘investment appetite’, the number of firms looking to secure funding for investment went up by 15% (post-lockdown: 65%); pre-lockdown (50%).

This metric is not about companies wanting loans purely to survive – business owners are looking beyond the immediate and are still confident they want to invest to grow and that it’s in their best interests to do so. It’s encouraging firm bosses are still ambitious and are thinking beyond the short and medium term.

Missed opportunities

The next measure that forms an important component of the BSI score looks at whether a company has missed a business opportunity in the last 12 months because of a lack of available finance.

For the last few years there has been a strong supply of cheap finance from a wide variety of sources and typically, during downturns and recessions, the number of lenders in the market reduces and we’d consequently expect the number of firms missing opportunities to increase.

This has been borne out by the early results to our research, which showed a 10% increase, and we expect this to widen the longer the economy takes to recover.

Economic outlook

Predictably, respondents’ views about the economy contributed most to the dip in the latest BSI figure.

In January, 71% of those in construction who took part in the research felt positive about the prospects for the UK’s economy; by the end of April, this had fallen to 46% as the lockdown measures continued to take effect.

Historically, the UK has proven to have an incredibly resilient economy, with well-established and well-run businesses able to ride out economic storms, and we don’t expect this to change.

Predicted business performance

Every time we commission our research, we ask business owners to predict how their firm is going to perform in the coming 12 months, and the differences between January and April is clear. The number of firms looking to expand has almost halved (although the figure is still a respectable 21%) while those expecting to contract has multiplied by a factor of 6 to 18%

Positively, the dial hasn’t moved in terms of the number of businesses expecting to close down altogether with only one respondent predicting a pulling up of the shutters permanently.


What we take from these results is that expectations have shifted and for many it’s a case of metaphorically battening down the hatches until the storm has passed.

Yes, these are troubled times, but business sentiment has been at these levels before. We must not forget that for nearly two years from April 2018 business sentiment was high and there should be no reason why we can’t return to those levels.

Clearly, there any many dependencies – the world may well be a very different place in some ways, but fundamentally, our economy will run in much the same way as it did before COVID-19.

We remain realistically optimistic about what the future will hold and look forward to renewing acquaintances when the time is right.