Rising costs means mixed start to 2017 for construction industry

SME builders, civil engineering firms, product manufacturers and specialist contractors all reported a strong start to 2017 with increases in sales, output and workloads in Q1 driven by increased demand. The Construction Products Association’s Construction Trade Survey Q1 also painted a positive picture for 2017 with companies reporting an optimistic outlook for the year ahead.

Meanwhile, weak activity in the industrial and commercial sectors resulted in main building contractors experiencing a decrease in activity, with 31 per cent reporting that construction output fell in the first quarter of 2017 compared with a year ago. In addition, Q1 order books were reported to be lower across the majority of sectors for both main contractors and civil engineering contractors.

The latest statistics also highlighted that the past depreciations of Sterling continue to exert upward pressure on input costs across the industry. An increase in overall costs was reported by 84 per cent of civil engineering contractors, whilst 86 per cent of main contractors, 93 per cent of heavy side manufacturers and 93 per cent of light side manufacturers also reported a rise in raw materials costs.

Commenting on the survey, Rebecca Larkin, Senior Economist at the CPA, said:

“Q1 was a positive opener to 2017 for product manufacturers, specialist building contractors and SME builders, continuing the momentum built up over the last four years of growth. For main contractors, however, it was only private sector house building that provided the bright spots of activity during the quarter. Falling orders in the commercial and industrial sectors also spilled over into infrastructure in Q1 and signal a broader weakness ahead.

“Furthermore, in contrast to the continued rise in costs reported during the quarter, particularly for imported raw materials, building contractors’ tender prices are moving in the opposite direction. This suggests that it is margins, rather than clients, that are bearing the brunt of cost inflation.

Suzannah Nichol, Chief Executive of Build UK said:

“Despite mixed rates of output growth in the first quarter of 2017, it is good news that enquiries for future work grew strongly with confidence in the project pipeline for 2017. But increased costs are beginning to bite. The majority of the supply chain reported increased costs in Q1, especially for materials. If this level of price increase continues, current and future projects could start to feel the squeeze.”

Marie-Claude Hemming, Director of Public Affairs at the Civil Engineering Contractors Association said:

“These results are extremely concerning. They show that not only is the rate of growth in infrastructure workloads currently sluggish, but that order books have moved into the red, indicating that the sector is at real risk of stagnation. Unless action is taken, our sector runs the risk of falling into a recession at exactly the time that we need it to be driving growth in the economy. As the country prepares to go to the polls next month, we call on all parties to commit to the projects outlined in the National Infrastructure Delivery Plan, and ensure steps are taken to boost investment in all regions of England, Scotland and Wales. Failure to act could undermine the sector’s ability to deliver. This will imperil the British economy at the very time we need this key driver of economic growth to secure the future of the UK.”