Despite a strong second quarter, the construction industry is pessimistic about the year ahead, according to the Construction Products Association’s Construction Trade Survey.
The survey of main contractors, SME builders, civil engineering firms, product manufacturers and specialist contractors found that all reported increases in sales, output and workloads in the quarter driven by increased demand. Nevertheless, net balances were weakened for enquiries, orders and expected sales among SMEs, civil engineering contractors and product manufacturers compared to Q1.
After 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% of main contractors, 87% of heavy side manufacturers and all light side manufacturers reported raw materials costs rose 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.
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. 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.
“Perhaps more conspicuous in the survey data 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 the 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.”
Key survey findings include:
- 22% of main building contractors, on balance, reported that construction output rose in the second quarter of 2017 compared with a year ago
- 30% of specialist contractors reported a rise in output during Q2
- 13% of civil engineers, on balance, reported an increase in workloads during Q2
- On balance, 24% 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% of civil engineering firms reported an increase in new orders in Q2, on balance
- 36% of SMEs and 20% of specialist contractors reported an increase in enquiries in Q2, on balance
- Overall costs increased for 84% of civil engineering contractors, whilst 88% of main contractors, 87% of heavy side manufacturers and all light side manufacturers reported raw materials costs rose in Q2.
Brian Berry, Chief Executive of the Federation of Master Builders, said: “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 and plasterers. Furthermore, there are real challenges ahead for the sector. The possibility of Brexit exacerbating already severe skills shortages and the continuing upward pressure on wages and salaries this brings, means construction SMEs will be cautious in their optimism”.