The construction
industry experienced modest growth in the third quarter of 2018, following a
weather-related boost to activity in Q2, according to a quarterly survey of
product manufacturers, contractors, civil engineers and SME builders by the
Construction Products Association.
The Construction
Products Association’s Construction Trade Survey for 2018 Q3 shows that
during the quarter, 27% of product manufacturers, 25% of main contractors, 16%
of SME builders and 10% of civil engineering firms reported an increase in
activity.
Output was reported
lower for one-third of specialist contractors, however. The new orders and
enquiries logged in Q3 indicate that the drivers of growth in the next 12
months will be restricted to private housing, repair and maintenance, and
infrastructure, whilst further rises in costs have been reducing profit margins
for main contractors and specialist contractors since the beginning of 2017.
On balance, 80% of
main contractors reported a rise in materials and labour costs, 90% of product
manufacturers reported an increase in fuel costs and cost rises for civil
engineering contractors reached a three-year high.
Commenting on the
survey, Rebecca Larkin, Senior Economist at the CPA, said: “The industry looks
to have maintained some of the momentum from its catch-up in the second
quarter.
"However,
beneath the top-level growth rate, firms throughout the supply chain are
grappling with a narrowing base of activity led by private housing and
infrastructure work and rising costs for labour, raw materials and fuel. This
triple threat for input costs is placing a clear strain on contractors’ profit
margins, worsening confidence in an already-heightened environment of risk
aversion.”
Richard Beresford,
chief executive of the National Federation of Builders (NFB), said: “The latest
trade survey indicates a general increase in construction output, workloads and
enquiries for SME contractors throughout the third quarter of 2018. This trend
reflects the effect of the unseasonably warm weather in lifting up overall
industry performance.
"The fall in
profit margin for 7% of main contractors and 33% of specialist contractors is
rather worrying because it is less than one year since the collapse of
Carillion. With the economy facing further uncertainty in future months with
the UK’s departure from the EU in March 2019, contractors operating with
falling profit margins are a reason for concern.”
Commenting, CECA
Director of External Affairs Marie-Claude Hemming said: “We welcome the fact
that the infrastructure sector has enjoyed a second quarter in a row of growth,
but there are some concerns as to poor growth in future orders. Given the
substantial pipeline of work that exists, we would expect that order books
would be rising at a greater rate that they have done in the last six months.
"It may be that
clients are wary of investing given the uncertainty surrounding the effects on
the economy of the UK leaving the European Union in 2019, and the inability of
businesses to plan adequately for the future, given the failure of Brexit negotiations
to progress beyond their current impasse.”
Key survey findings
include:
- On balance, 25% of main
building contractors reported that construction output rose in the third
quarter of 2018 compared with a year ago
- 10% of civil engineers, on
balance, reported an increase in workloads during Q3
- On balance, 16% of SME
contractors reported increased workloads in Q3 compared to three months
earlier
- Main contractors reported
that order books were higher in private new housing, and the housing and
non-housing R&M sectors
- 15% of civil engineering
firms reported an increase in new orders in Q3, on balance, but new orders
fell for 17% of specialist contractors
- 22% of SMEs reported an
increase in enquiries in Q3, on balance
- Overall costs increased for
89% of civil engineering contractors, whilst 80% of main contractors
reported a rise in costs for labour and materials. Fuel costs rose for 90%
of heavy side and light side product manufacturers
- Profit margins fell for 7% of
main contractors and one-third of specialist contractors in Q3.
