Rising costs dampen outlook for industry

An increase in materials cost is throwing a shadow over the prospects for industry firms, according to the latest Construction Trade Survey from the Construction Product Association, published today.

On a positive note it shows that the construction industry grew for a 14th consecutive quarter in Q3 with firms across the board reporting an increase in activity. Indicators of future growth weakened, however, and activity may be severely hindered by inflationary pressures caused by rising wages and imported raw materials costs.

Commenting on the survey, 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 sterling, which is providing a dual hit to construction costs alongside existing wage inflation pressures.”

Suzannah Nichol, chief executive of Build UK, said: “While the industry demonstrated its resilience by continuing to grow during Q3, we can see that projects are increasingly affected by construction’s skills challenges. By getting behind the recommendations of the ‘Farmer review’ and delivering on the industry’s commitment at the Construction News Summit Skills Hack to reform the skills system, we can address these challenges and achieve change throughout the supply chain.”

Marie-Claude Hemming, head of external Affairs at the Civil Engineering Contractors Association, said: “It is disappointing that our members continue to report weak growth in their workloads. The infrastructure sector is a vital driver of growth in the UK economy.  While recent government decisions to commit to large infrastructure projects at Heathrow and Hinkley Point are welcome, it is clear that the last quarter has seen a lull in activity.”

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.
• 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
• 54% of main contractors reported difficulties recruiting bricklayers, 47% for carpenters and 43% for plasterers in Q3.
• Overall costs increased for 59% of civil engineering contractors, while 66% of main contractors reported raw materials costs rose in Q3 compared with the previous quarter.