Construction defies Brexit pessimism but costs a growing threat

The construction industry grew for a fourteenth consecutive quarter in Q3, according to the Construction Products Assocition. 

Firms across all areas of construction reported an increase in activity, including building contractors, SMEs, specialist contractors, civil engineers and product manufacturers.  Indicators of future growth weakened, however, and activity may be severely hindered by inflationary pressures caused by rising wages and imported raw materials costs.

Rebecca Larkin, Senior Economist at the CPA, said, “Following the EU referendum, the entire construction supply chain reported favourable conditions and growth in activity in Q3.  Forward-looking expectations for Q4 and the year ahead were more pessimistic, with the majority of orders and enquiries balances the lowest in two years, or driven by a single sector:  private housing.

“A further factor that stood out as a downside risk to activity in the near-term is the sharp rise in the cost of imported raw materials due to the recent depreciation in the Sterling, which is providing a dual hit to construction costs alongside existing wage inflation pressures.”

Key survey findings include:

• 33% of main building contractors, on balance, reported that construction output rose in the third quarter of 2016 compared with a year ago
• A balance of 7% of specialist contractors reported a rise in output during Q3
• 1% of civil engineers, on balance, reported an increase in workloads during Q3
• On balance, 18% of SME contractors reported increased workloads in Q3 compared to three months earlier
• Main contractors reported an increase in orders in private housing but reported a decrease in all other sectors
• 6% of SMEs and no specialist contractors reported an increase in enquiries in Q3, on balance
• 3% of civil engineering firms reported an increase in new orders in Q3, on balance
• 54% of main contractors reported difficulties recruiting bricklayers, 47% for carpenters and 43% for plasterers in Q3
• Overall costs increased for 59% of civil engineers contractors, whilst 66% of main contractors reported raw materials costs rose in Q3 compared with the previous quarter