Contractor demand continues to improve, as revealed by a number of key surveys and indices. The UK economy is back in positive growth territory, which is good news for contractors in the finance and business services sectors leading the economic growth. Crucially, the CBI’s latest Industrial Trends survey reveals that companies are starting to invest in new capacity and process improvements, which are typically projects offering a lucrative source of contracts. The only cloud on the contracting horizon is the oil and gas sector, which may lose projects worth billions because of the new ‘windfall tax’ on energy firms.
In this month’s ContractorCalculator Market Report:
- March’s Monster Employment Index shows sustained growth in core contracting disciplines, but the headline index falls marginally
- Contracting demand increases for the nineteenth consecutive month, according to the Recruitment and Employment Confederation (REC)/KPMG Report on Jobs
- The Office of National Statistics’ latest GDP estimate confirms the UK economy has returned to growth, led by the core contracting client sectors of finance and business services, although the outlook was less positive for construction
- According to data from the CBI, manufacturing’s recovery is sustained for another quarter, with recruitment growth at its highest rate since January 1974, a huge boost for contractors serving the sector
- Bad news for oil and gas contractors comes in the form of a new study that reveals the sector may miss out on investment worth up to £82 billion between now and 2041 as a direct result of the recent windfall tax on North Sea production revenues.
Contractor demand online is sustained across all core contracting sectors for another month
Contractor demand online was sustained for another month across all core contracting sectors, despite a slight fall of two points off the headline index compared to the previous month, according to the March Monster Employment Index (MEI). Year on year, the headline index was up by 9%.
Contractor demand significantly exceeded the headline index annual growth figure with online demand for engineers up 26%, demand for IT workers up 22% and online construction worker demand up 25%. Each of these sectors also posted monthly increases and, according to Monster, the increase in construction worker demand suggests “an emergence of contract and short-term opportunities for a wide spectrum of skilled trades.”
But demand for workers in the public sector, defence and community fell by 6% compared to March 2010. “The private sector continues to grow steadily within industries such as IT, construction, transport and research and development, which could help in some way to offset public sector job losses,” explains Monster UK & Ireland’s spokesperson, Isabelle Ratinaud.
The private sector continues to grow steadily within industries such as IT, construction, transport and research and development, which could help in some way to offset public sector job losses
Isabelle Ratinaud, Monster UK & Ireland
Contractor demand sustained for nineteen consecutive months, says Report on Jobs
Contractor and temp worker vacancies increased for the nineteenth consecutive month in March, with engineering and construction contractors leading the demand table, closely followed by IT contractors, according to the March Recruitment and Employment Confederation (REC)/KPMG Report on Jobs.
However, slowing growth of contractor candidates, at a seven month low, has resulted in emerging skills shortages in IT and engineering, although this has yet to impact on pay as growth in rates remains subdued.
In line with the MEI, the Report on Jobs reveals that a two-speed labour market is emerging. According to recruiters, short-term hiring outside of core contracting disciplines has declined, which has been blamed on public sector spending cuts.
Contractor client sectors are major contributors to economic recovery as UK GDP returns to growth
The contracting sectors of finance and business services were, alongside transport storage and communications, the largest contributors to renewed growth in the UK economy. Preliminary estimates by the Office of National Statistics of the UK’s gross domestic product (GDP) for the first quarter of 2011 suggest the economy grew by 0.5%, and that the shock fall in GDP in the last quarter of 2010 was due to the abnormal weather.
However, in contrast to other measures, such as the Chartered Institute of Purchasing and Supply (CIPS) Construction Purchasing Managers Index (PMI), the MEI and the Report on Jobs, the data from ONS suggests a downturn in construction activity. The BBC’s Economics Editor Stephanie Flanders explains in a recent blog post that this disparity could be explained by the way construction output is measured, and that in fact construction is doing rather better than the preliminary ONS figures suggest.
Overall, any sign of growth in the economy is good news for contractors, particularly if this stimulates larger companies to start spending the cash piles they have been accumulating on their balance sheets whilst waiting for positive news on economic growth.
Contractors in the manufacturing sector benefit from sustained recovery
Contractors currently working in the manufacturing sector, or seeking new contracts from manufacturing clients, look set to experience ongoing recovery, according to a recent survey by the Confederation of British Industry (CBI). In its April Quarterly Industrial Trends survey, the CBI shows domestic and export demand for UK manufactured goods at their highest levels since April 1995.
Crucially, the survey shows that firms are planning investment into more plant, machinery and product and process innovation, representing a potential burst of new project opportunities for IT, interim management and engineering contractors.
“Perceptions of order book levels have dipped in the monthly data, but the readings are still well above the long-run average,” explains CBI Head of Economic Analysis Lai Wah Co. “The quarterly [questions asked of the survey respondents] show that manufacturing orders have risen strongly over the past three months and output growth remains robust.”
Oil and gas contractors may lose out on new contracts as North Sea investment is forecast to slow
Oil and gas contractors may lose out on new contracts potentially worth billions of pounds, as the recent windfall tax on oil and gas producers threatens investment into new exploration and production capacity in the North Sea.
A new study published by oil and gas sector economists Professor Alexander Kemp and Linda Stephen of the University of Aberdeen, The Effects of Budget 2011 on Activity in the UK Continental Shelf, presents three models of how investment may be curtailed because of the tax.
Kemp and Stephen predict that investment and operating costs worth up to £82 billion could be lost between now and 2041 because of the tax increase, which will make many proposed exploration and production projects, particularly in deeper waters, economically unviable.