The UK’s £56.5
billion construction product manufacturing industry is expected to slow this
year as the sector lost its pace at the end of 2017, according to the CPA’s
State of Trade Survey for 2017 Q4.
The survey results
showed activity is expected to weaken this year as inflation continues to rise,
economic growth slows, and the UK’s post-Brexit deal still remains unclear.
It is likely the
first half of 2017 was a peak for the industry, with the survey reporting early
signs of slowing activity in the final three months of 2017, and construction
product manufacturers envisaging a broader softening in market conditions during
2018.
The survey results
showed that 6% of heavy side manufacturers, such as steel, bricks, timber and
concrete, reported a decrease in product sales in Q4, compared to 10% reporting
a rise in Q3. This was the first negative balance since 2013 Q1. In contrast,
sales on the light side, which includes non-structural and finishing products
such as insulation, boilers, glass and lighting, were still reported higher by
half of manufacturing firms.
Whilst a modest
pickup in sales is anticipated in the first quarter of 2018, the survey showed
a weakness in sales expectations extending across the next 12 months, for both
heavy side and light side firms. No heavy side firms and only 10% of those on
the light side expected an increase in product sales during 2018.
Rebecca Larkin, CPA
Senior Economist said: “The survey echoes other industry data that has shown
the prolonged period of growth in construction activity since 2013 started to
lose pace in the closing months of 2017. Of note are the signals of a leaner 2018
with heavy side expectations for sales growth at their lowest in five years,
reflecting a backdrop of a slower economy, Brexit uncertainty and falling new
orders in key sectors such as commercial offices.
“As well as weaker
market conditions, it appears as though a further rise in costs will strengthen
the headwinds facing industry. In Q4, 87% of heavy side firms and 91% of light
side firms reported a rise in raw materials costs, whilst on the energy-intensive
heavy side, fuel and energy costs were reported higher for 93% of firms. This
illustrates the lagged pass-through of the 2016 Sterling depreciation and
rising global commodity prices into input cost inflation that is still to
filter down the construction supply chain. Three-quarters of product
manufacturers expect inflationary pressures to linger into 2018.
Key survey findings
include:
- A balance of 6% of heavy side
firms reported that construction product sales fell in the fourth quarter
of 2017 compared with the third quarter. 50% of light side firms reported
a rise in sales in Q4
- On an annual basis, sales
rose for 13% of heavy side firms and half of firms on the light side, on
balance
- On balance, no heavy side
manufacturers anticipated a rise in sales in the next year, decreasing
from a balance of +28% in the previous quarter
- On the light side, 10% of
firms expected an increase in product sales in the next year, compared to
a balance of 33% in Q3
- Annual cost increases were
reported by 87% of manufacturers on the heavy side and 80% on the light
side
- Raw materials costs rose
according to 87% of heavy side manufacturers and 91% of those on the light
side
- 73% of heavy side
manufacturers and 80% of light side manufacturers anticipate a rise in
costs over the next year.
