The proportion of
companies in the construction supply chain struggling with rising costs for raw
materials, labour and energy has remained elevated in each quarter in 2017
according to the Construction
Products Association's Construction Trade Survey for 2017 Q4.
The survey found
that although activity continued to increase for main contractors, SME
builders, product manufacturers and specialist contractors during the quarter,
civil engineering firms reported the first fall in workloads in four years.
Net balances for
orders, enquiries and expected product sales for the year ahead weakened, and
contractors reported lower orders in the commercial, infrastructure, industrial
and public non-housing sectors. Combined, these sectors account for over 40% of
total construction output.
Rises in fuel and
energy costs were prevalent among heavy side product manufacturers, reflecting
the lagged impact of Sterling's depreciation during 2016 on hedged commodity
prices. This, in combination with existing price pressures for raw materials
and labour, has intensified the cost inflation passing through the supply
chain. Overall, costs were reported higher for 82% of civil engineering
contractors, whilst raw materials increased for 82% of main contractors and 91%
of light side product manufacturers.
Commenting on the
survey, Rebecca Larkin, Senior Economist at the CPA, said: "The Q4 survey
marked the fourth consecutive quarter of falling profit margins among building
contractors. This combined with Carillion's liquidation at the start of this year,
only emphasises the financial strains exerted by a protracted period of rising
costs passing through the supply chain. Falls in new orders reported in the
four sizeable sectors of commercial, infrastructure, industrial and public
non-housing add another downside to the outlook for 2018 given the early signs
of slowing activity at the end of last year."
Brian Berry, Chief
Executive of the Federation of Master Builders (FMB), said: "Smaller
building firms in the construction sector fared well in the final three months
of last year. The latest figures demonstrate an underlying resilience in the
industry with many firms reporting increased workloads and an increase in
enquiries. However, now is no time for complacency as growth among construction
SMEs is slowing. Firms have reported record highs in terms of problems hiring
skilled trades such as bricklayers, carpenters and plasterers. With Brexit just
around the corner, this problem could well be exacerbated if our access to
skilled EU workers is diminished. What's more, the acute skills gap has caused
salaries to spike and material prices remain high. Together these factors are
squeezing margins for smaller builders."
CECA Director of
External Affairs, Marie-Claude Hemming, said: "These disappointing figures
show that more must be done to unlock planned infrastructure investment and
bring schemes to market. CECA calls on Government to do more, by committing to
projects outlined in the National Infrastructure Delivery Plan, and to continue
to develop projects to add to this pipeline to secure the future of the UK
economy. Our hopes are that the decline in workloads during 2017 Q4 is
representative of a pause in activity, rather than a sign of broader
decline."
Key survey findings
include:
- On balance, 22% of main
building contractors reported that construction output rose in the fourth
quarter of 2017 compared with a year ago
- One-third of specialist
contractors reported a rise in output during Q4
- 4% of civil engineers, on
balance, reported a decrease in workloads during Q4
- On balance, 20% of SME
contractors reported increased workloads in Q4 compared to three months
earlier
- Main contractors reported
that order books were lower in industrial, commercial and public
non-housing
- 10% of civil engineering
firms reported a decrease in new orders in Q4, on balance
- 15% of SMEs and half of
specialist contractors reported an increase in enquiries in Q4, on balance
- Overall costs increased for
82% of civil engineering contractors, whilst 82% of main contractors, 87%
of heavy side manufacturers and 91% of light side manufacturers reported
raw materials costs rose in Q4
- 17% of main contractors and
specialist contractors reported a fall in profit margins in Q4.
