Rising cost pressures expected to dent construction industry growth

By Emma Salmon at Wednesday, February 8, 2017

Firms across the construction industry are bracing themselves for further cost pressures after reporting a rise in raw material prices despite growth across the industry during 2016 Q4.

An increase in sales, output and workloads were all reported during the quarter but forward-looking indicators suggest the outlook for building activity during 2017 has worsened. The Construction Products Association’s Construction Trade Survey Q4 showed that overall costs increased for 88% of civil engineering contractors, whilst 75% of main contractors, 78% of heavy side manufacturers and 88% of light side manufacturers also reported a rise in raw materials costs.

The latest statistics also highlighted a skills shortage affecting key on-site trades with main contractors reporting shortages of carpenters and plasterers at their highest in nine years.

Commenting on the survey, Rebecca Larkin, Senior Economist at the CPA, said: “The construction industry closed 2016 on a strong note, with activity improving for firms throughout the supply chain. However, order books and enquiries were lower for contractors and signal a weaker outlook for 2017.

“Cost pressures continued to rise, particularly for imported raw materials, and compound the risks that activity will be unable to grow at current rates over the next 12 months. The construction products manufacturing industry is responsible for directly employing 280,000 people and whilst government has a role to play in providing certainty for projects, industry will need to find ways to navigate rising costs.”

Richard Beresford, Chief Executive of the National Federation of Builders said: “The decrease in both public and private housing is a call to the Government to be bold in its housing aspirations. When Theresa May came to office, she promised to deliver an economy that works for everyone. If we cannot provide people with the most basic requirement such as a roof over their head, then the Housing White Paper will have failed.”

Brian Berry, Chief Executive of the Federation of Master Builders said: “Rising material prices and growing skills shortages dampened growth among construction SMEs in the final three months of last year. The optimism that we saw from small construction firms during most of 2016 has now dropped off because of growing concerns about rising costs. The pledge from the Government that it will focus on finding ways to boost smaller scale house builders is therefore timely as it’s an area that is ripe for growth and could help counteract the risk of stagnation within the SME part of the construction industry.”

Key survey findings include:

  • 38% of main building contractors, on balance, reported that construction output rose in the fourth quarter of 2016 compared with a year ago
  • A balance of 14% of specialist contractors reported a rise in output during Q4
  • 11% of civil engineers, on balance, reported an increase in workloads during Q4
  • On balance, 12% of SME contractors reported increased workloads in Q4 compared to three months earlier
  • Main contractors reported a decrease in orders in private housing, public housing, private industrial and private commercial
  • 12% of SMEs reported an increase in enquiries in Q4, on balance, but 38% of specialist contractors reported a decrease
  • 19% of civil engineering firms reported an increase in new orders in Q4, on balance
  • Overall costs increased for 88% of civil engineers contractors, whilst 75% of main contractors, 78% of heavy side manufacturers and 88% of light side manufacturers reported raw materials costs rose in Q4
  • 71% of main contractors reported difficulties recruiting carpenters, 67% for plasterers and 40% for bricklayers in Q4.

 View the Construction Trade Survey 2016 Q4 here.

ENDS

 

NOTE TO EDITORS:

  1. The Construction Products Association represents the UK’s manufacturers and distributors of construction products and materials. The sector directly provides jobs for 288,000 people across 22,000 companies and has an annual turnover of more than £55 billion.  The Association is the leading voice to promote and campaign for this vital UK industry. The CPA produces a range of economic reports including the quarterly Construction Industry Forecasts, Construction Trade Surveys and the State of Trade Surveys.  Much of the CPA's work is focused on serving as the first point of contact for politicians and policy makers requiring advice and information about matters that affect construction products or the wider construction industry. This includes understanding the need for investment into manufacturing or the built environment, new housing and energy-saving retrofitting of the existing housing stock; helping to develop effective, UK and EU legislation, regulations and product standards; and promoting the role of manufacturers in delivering a resource efficient built environment.
  1. Build UK provides a strong collective voice for the contracting supply chain in construction. Build UK brings together 27 of the industry’s largest main contractors and 40 leading trade associations representing over 11,500 specialist contractors. Build UK was created as a result of a merger between the National Specialist Contractors’ Council (NSCC) and UK Contractors Group (UKCG) in 2015.
  1. The Civil Engineering Contractors Association (CECA) has over 300 member firms that carry more than 80% of all civil engineering work in Great Britain. The CECA survey of civil engineering workload trends, in which more than a third of the membership takes part, tests for changes over the past year in contractors’ workload, workforce, order books, cost trends, and tender prices.  It also examines the supply situation for key resources, and contractors’ expectations of trends in new orders and employment in the coming 12 months.
  1. The Federation of Master Builders (FMB) is the largest trade association in the UK construction industry representing thousands of firms in England, Scotland, Wales and Northern Ireland. Established in 1941 to protect the interests of small and medium-sized (SME) construction firms, the FMB is independent and non-profit making, lobbying for members’ interests at both the national and local level. Within its membership, around 45% of FMB members build new homes either as their primary function or as part of the suite of building services they provide, but most are primarily active in the domestic RM&I market. The FMB is committed to raising quality in the construction industry and offers a free service to consumers called ‘Find a Builder’.
  2. The National Federation of Builders (NFB) represents around 1,500 builders and contractors across England and Wales. In addition to providing specialist advice and business services, the federation, with a network of four regional offices, lobbies local, national and European government on a range of issues to sustain positive trading conditions for members.  With origins dating back to 1876, today's NFB is a modern organisation providing the medium sized contractor and smaller builder with an unparalleled package of services

 

FOR FURTHER INFORMATION CONTACT:

Rebecca Larkin, CPA Senior Economist

Tel:      020 7323 3770

E-mail:  rebecca.larkin@constructionproducts.org.uk

 

Emma Salmon, CPA Marketing and Communications Executive

Tel:      020 7323 3770

E-mail:  emma.salmon@constructionproducts.org.uk

Follow the Construction Products Association on Twitter:  https://twitter.com/CPA_Tweets

 

 

By Emma Salmon at 8 Feb 2017, 08:20 AM