Construction - How Has The Recession Affected The Industry?
Construction - How Has The Recession Affected The Industry
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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 United Kingdom's national economy has been massively affected by the recent fiscal downturn, with the sector of construction being one of the most affected divisions. In December, 2008, the sub-sectors of commercial construction and civil engineering fell at record levels, though the sub-sector that was most affected was house construction. Although the British government had tried to counteract this decline, the Bank of England was forced to slash interest rates to a level not seen for 314 years.
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.
In simple terms, the construction industry has been massively affected by the previous years of recession and as such, has meant a decline in new constructions. The reasons behind this, also put into basic terms, are that there has been a decrease in demand for new constructions. The reason house prices fell is also because of reduced demand, so homeowners and developers have had to reduce their asking prices to try to tempt buyers.
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.
In summary, due to the market that the construction industry is an element of, it will always be susceptible to depression during a recession; though not all businesses in the construction industry will be affected by the same extent. Smaller businesses will feel the pressure much more than larger businesses, purely because larger businesses have more assets and resources which they can call on in the event of reduced income.
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