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Inflation could unsettle recovery says CPA

The mild and dry weather, restocking and a favourable exchange rate meant that the outlook for construction products manufacturers improved in 2011 Q1 according to the latest Construction Product Association State of Trade Survey.
However, inflation and the looming cuts to public sector capital spending are a concern.

Almost 80% of construction products manufacturers reported that the sustainability of demand is a real concern and the single most likely factor to constrain activity over the next 12 months. Cuts to central government and local authority capital budgets from 2011/12, announced in the Comprehensive Spending Review, will begin to bite in the second half of 2011, well before the private sector construction recovery is fully entrenched.

Compared with the same quarter one year earlier, sales volumes in 2011 Q1 were higher according to both light side and heavy side firms. 56% of heavy side firms and 44% of light side firms reported that sales volumes rose between 2010 Q1 and 2011 Q1. Over the next 12 months, both heavy and light side firms expect sales to continue to rise. Heavy side firms are, on balance however, more positive than light side.

Sales volumes increased according to 56% of heavy side firms, whilst only 22% reported a fall over the same period. For light side firms, 2011 got off to a more challenging start to the year, with the number of firms reporting an increased from 2010 Q4 exactly offsetting the number reporting a decrease.

A quarter of heavy side firms and a third of light side firms expect sales to be flat over the next year. As concern about the stability of demand mounts, however, 21% of both heavy and light side firms anticipate that sales will fall over the next year. 54% of heavy side firms and 46% of light side firms expect sales to increase over the next 12 months as exports continue to rise.

In spite of this optimism, many respondents remain concerned about the likely stability of domestic demand as the public sector retrenches.

Construction Products Association Economics Director, Noble Francis said: “The survey highlights that the situation for construction product manufacturers remained challenging in the first quarter of 2011. Yet the scale of the fall in the official figures is extremely surprising and inconsistent with information from this survey and anecdotal evidence from the industry.”

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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