Investing is an art, at the best of times. The shrewd investment of money in businesses and assets is the only way to build meaningful returns on your savings, especially in strange times for the UK economy. Previously, investment was a strong way to beat low interest rates; today, it is necessary to keep pace with rising inflation.
When it comes to choosing your investment vehicles, there are many different factors to take into consideration before entrusting your money with their growth. The construction industry is a good place to start for many investors, but what should you know about the industry ahead of the new year?
Challenges Facing the Construction Industry
Firstly, it is important to note the strong footing on which the construction and contracting industry currently stands. For one, property remains in high demand in two vital ways: as accommodation, and as asset. With the housing market continuing to run strong against a weak economy, there is more appetite from councils and private developers for new build domestic projects.
Indeed, this is reflected in recent ONS data regarding the industry, which shows an over 2% increase in output in mid-2022. However, the construction industry is just as vulnerable to the movements of the wider UK economy as other industries, and the general threat of recession is enough to see industry leaders bracing for impact.
As the Bank of England continues to hike interest rates against the government’s counterintuitive pro-growth direction, lending and spending become much more expensive. This significantly impacts the size of the investor pool for larger-scale developments, as well as the scope of projects that have not left the planning stages.
Meanwhile, the pound’s relative loss of value against the dollar has significantly impacted the cost of imports, which presents its own existential risk to supply chains and access to raw materials. Altogether, this makes for a series of barriers to growth both internal and external.
Avoiding Risk as an Investor
But what does this mean for you as an individual investor? The risks facing the construction industry are risks shared by businesses in other sectors, both prominent and growing. As such, it is important to dive deep on the specific situations of individual contractors and enterprises in order to evaluate their market resilience.
Generally speaking, construction is a safe bet for your wealth – but not exclusively, and not via a single contractor. A wealth management specialist would hedge investments by spreading them across promising and established businesses in construction; if some buckle under economic pressure, the bulk of the investment is protected and continues to track the industry average.
Industry Outlooks in 2023
But as a national recession nears, there is a strong likelihood that businesses across construction and in other industries will lose value as GDP shrinks. This means widespread loss on investments, however shrewdly they were made. Unless the government undergoes a paradigm shift in its approach to the economy, the outlook remains poor – which opens up its own opportunities through shorting the market.