12 INDUSTRY NEWS
Industry beats performance expectations
Activity in the construction industry has risen at a faster pace since the EU referen- dum than had initially been expected, according to the Construction Products Association (CPA). Construction output is expected to rise
each year between 2017-2019, by 1.3 per cent in 2017, 1.2 per cent in 2018 and 2.3 per cent in 2019. While the figures may fuel hope that the
UK construction industry will be resilient in the face of Brexit-related concerns including rising costs, the growth masks a considerable difference in activity across the key construction sectors. Housebuilding is expected to remain an
important source of growth, with private housebuilding starts rising by 7.2 per cent between 2017 and 2019, underpinned by a continued upward trend in house prices, demand from first-time buyers and Help to Buy equity loans. In 2016, Help to Buy accounted for 39.8 per cent of new homes sales in Q4 and has been a significant policy for supporting building activity. Infrastructure projects are expected to be
the industry’s main growth engine, driven by a strong National Infrastructure and Construction Pipeline, valued at £300bn over the next four years. In particular, growth to 2019 is expected
to be primarily driven by a 34.5 per cent increase in infrastructure activity due to major projects in the energy, rail and water sub-sectors. Noble Francis, economics director at the
CPA, believed that construction output has been sustained “primarily due to projects signed up to before 2016.” “Looking further forward,” he said, “a
fall in contract awards during the second half of last year is likely to impact the great- est, where Brexit uncertainty affects sectors requiring high investment up front for a long term rate of return, such as commercial offices and industrial factories.” Francis Noble commented that, “given
the dependence of construction industry growth on activity in the infrastructure and private housing sectors,” it is “essential that government focuses on delivery of infra- structure projects.” He concluded: “As major housebuilders
are reliant upon Help to Buy equity loans, which are due to end in 2021, it is vital that Government outlines its plans early to support housebuilding growth as we approach the end of the scheme.”
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Builders bullish despite rising costs
Small firms enjoyed rising workloads in the first quarter of 2017, despite growing concerns over the cost of labour and materi- als, according to the Federation of Master Builders (FMB). The FMB’s State of Trade Survey for Q1
2017 has been released recently, which is the largest quarterly assessment of the UK- wide SME construction sector. It revealed that UK construction SME
workloads increased more significantly than at any time since Q2 2016 (i.e. the quarter immediately prior to last June’s EU referendum. In the survey, one in two construction
SMEs predicted rising workloads in the coming months, with just 5 per cent predicting a decrease in activity. 85 per cent of builders were reported to
believe that material prices will rise in the next three months, with 58 per cent of firms struggling to hire carpenters (a post financial crisis high). Brian Berry, chief executive at the FMB,
said the first three months of 2017 proved to be “very positive” for construction SMEs, who “reported strong growth, under- pinned by continuing resilience in the home improvement sector.” He continued: “Workloads rose in every
part of the UK, with particularly positive results in the devolved nations. Given the concerns that wider consumer confidence
might be weakening, it’s encouraging that smaller construction firms aren’t sensing any drop-off in demand for their services.” Reminding of recent events, Berry said:
“The survey covers the period before the announcement of a snap general election, which may well cool consumer demand in the coming months. The results are also tempered by a clear rise in output costs for construction companies.” “Material prices and wages rose
markedly in the first three months of this year, with larger numbers of construction SMEs believing that all three will rise further during the next quarter. Indeed, although only 20 per cent of construction products and materials used in the UK are imported, the depreciation of Sterling since the referendum last June has seen material prices shoot up — with 85 per cent of builders predicting further rises – this pressure on margins looks set to continue.” Brian concluded that the combined
effects of rising material costs and the “ever-worsening construction skills crisis” will be “reason enough” for SME construc- tion firms to be cautious in their optimism. “As of yet,” said Berry, “the much antici- pated ‘Brexit effect’ has yet to hit what is considered to be the bellwether sector of consumer confidence and wider economic health.”
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