Construction
workloads slowed amid financial constraints, which were reported by 80% of
respondents to be the most significant impediment to building activity,
according to the Q2 2018 RICS UK Construction and Infrastructure Market Survey.
In Q2 2018, 15% more
chartered surveyors reported that their workloads had risen rather than fallen,
and, although this is still in positive territory, the Q2 figure moderated from
a net balance of +23% in Q1.
Eighty per cent of
respondents noted that financial constraints were a limiting factor to building
activity – the joint highest reading in five years.
Respondents have
often cited financial constraints to be causing difficulties in recent reports,
and more specifically access to bank finance and credit, cash flow and
liquidity challenges or less favourable cyclical market conditions.
"Although
growth in the sector has moderated, ongoing capacity constraints have ensured a
steady pipeline of work with robust expectations for the year ahead," said
Jeffrey Matsu, RICS Senior Economist.
" With
businesses continuing to hire to meet this pent up demand, the effects of any
uncertainty generated by Brexit or recent market events, including Carillion,
may only become more evident in the longer-term."
The RICS quarterly
series indicated growth eased across nearly all sectors in Q2, with private
industrial and housing segments observing the sharpest slowdown. While the
figures are still positive, the pace has slowed in housing with a net balance
of +25% of contributors reporting a rise in private housing activity, compared
to +36% in Q1 and an average of +30% over the past two years. Anecdotal
evidence suggested that the housing market slowdown, coupled with ongoing
ambiguity with the Brexit negotiations, is weighing on investment decisions.
Contributors
reported a flat reading this quarter which was the weakest reported sentiment
over the last five years.
Total workloads are
now reported to be slowing across all geographic regions. This was particularly
the case in the Midlands and East of England which was led by the first decline
in industrial activity in over five years. In contrast, total workloads in the
North and South West were the most resilient, supported by solid activity in
private housing.
In infrastructure,
11% more contributors reported a rise rather than a fall in activity (easing
from a net balance of +21% in Q1) with respondents expecting the rail, roads
and energy subsectors to post the strongest growth over the next twelve months.
Meanwhile, results for public sector workloads were mixed with 12% more
contributors reporting a modest acceleration of growth in housing, compared to
a net balance of +5% in non-housing.
Despite the
uncertain outlook for the economy, 41% more respondents expect activity to rise
rather than fall. When asked how business enquiries for new projects or
contracts have fared in the past three months, 14% more respondents reported an
increase rather than decrease. This is alongside a net balance of +28%
foreseeing an increase in hiring compared with an average of +32% over the last
four quarters. Ongoing uncertainty driven by Brexit and recent market events
are leading businesses to postpone or curtail investments, however, which may
negatively affect the industry’s longer-term growth prospects.
Although tender
price expectations over the next twelve months moderated in Q2, +54% and +48%
more respondents continue to envisage greater price pressures in the building
and civil engineering areas, respectively. The expected rise in tender prices
may signal rising input costs and shrinking profit margins for businesses.
Indeed, expectations on profit margins eased from a net balance of +15% to +5%
in the latest results.
