10 INDUSTRY NEWS
Political uncertainty hits construction outlook
Despite a strong Q2, the industry’s supply chain are reportedly pessimistic about the year ahead.
According to the Construction Products Association’s Construction Trade Survey of main contractors SME builders, civil engineering firms, product manufacturers and specialist contractors, all reported increases in sales, output and workloads in the quarter were driven by increased demand. Notably however, order books were sustained by private housing and R&M work, but fell in sectors such as commercial and industrial. This was echoed throughout the supply chain, with net balances weakening for enquiries, orders and expected sales among SMEs, civil engineering contractors and product manufacturers compared to Q1. As a result of Sterling’s depreciation since the EU Referendum, the strongest cost pressures for the construction industry have been rising prices for imported materials. On balance, 88 per cent of main contractors, 87 per cent of heavy side manufacturers, and all light side manufac- turers reported raw materials costs rising in Q2. In spite of this, almost half of main contractors and specialist contractors opted to keep tender prices unchanged, leading to a fall in margins. Commenting on the survey, Rebecca Larkin, senior economist at the CPA, said:
“This was the 17th consecutive quarter of growth for the construction industry, but a cautious stance over future expectations is not surprising.” She added: “Another quarter of slow
GDP growth, rising costs and a near-term outlook clouded by Brexit uncertainty have led to a fall in orders in privately- financed sectors such as commercial and industrial, and this pessimism has also spilled over into infrastructure,” warning that “perhaps more conspicuous is the squeeze on margins for main contractors and specialist contractors.” “Strained margins had already been
acute for some time given skills shortages pushing up construction wages. Now there’s added pressure of contractors trying to avoid or delay passing on the full cost of higher raw materials prices to clients when tendering for upcoming construction projects.” Brian Berry, chief executive of the
Federation of Master Builders, gave a positive take on the figures for SMEs: “Despite rising material prices and a period of political uncertainty, it is encouraging to see the SME construction sector continuing to grow. “The industry is demonstrating significant resilience, especially when we consider difficulties in recruiting key trades such as bricklayers and carpenters, and shortages in other trades, such as plumbers
KEY SURVEY FINDINGS:
- 22 per cent of main building contractors, on balance, reported that construction output rose in the second quarter of 2017 compared with a year ago
- 30 per cent of specialist contractors reported a rise in output during Q2
- 13 per cent of civil engineers, on balance, reported an increase in workloads during Q2
- On balance, 24 per cent of SME contractors reported increased workloads in Q2 compared to three months earlier
- Main contractors reported higher orders in private housing and both housing and non-housing R&M
- 3 per cent of civil engineering firms reported an increase in new orders in Q2, on balance
- 36 per cent of SMEs and 20 per cent of specialist contractors reported an increase in enquiries in Q2, on balance
- Overall costs increased for 84 per cent of civil engineering contractors, while 88 per cent of main contractors, 87 per cent of heavy side manufacturers and all light side manufacturers reported that raw materials costs rose in Q2
and plasterers.”
He said there were a host of challenges ahead for the sector, with “the possibility of Brexit exacerbating the already severe skills shortages and the continuing upward pressure on wages and salaries this brings, meaning construction SMEs will be cautious in their optimism.”
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