Financial concerns hit construction’s largest sectors

Latest News Tue, Feb 13, 2018 3:34 PM

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.

Featured News

Specification news
Abloy’s Aperio E100 and SMARTair solutions achieve...

Abloy UK is proud to announce its Aperio E100 and SMARTair solutions have...

Read More >>

Specification news
Hardie® Architectural Panel Chosen For Go Modular...

Beam Contracting, the high-end construction firm, has chosen to utilise the Hardie®...

Read More >>

BUILDING PRODUCT LIBRARY - LATEST BROCHURES

REVO.Prime TSA 325 NT Brochure

REVO.Prime TSA 325 N...
By GEZE UK Ltd

Download Now >>

Natural ventilation strategy for Sunderland SEND school Brochure

Natural ventilation...
By Passivent

Download Now >>

Squash Court Flooring Brochure

Squash Court Floorin...
By Junckers Limited

Download Now >>

Junckers Acoustics Floor System Brochure

Junckers Acoustics F...
By Junckers Limited

Download Now >>

BUILDING PRODUCT DIRECTORY - LATEST PRODUCTS

Ei1025 Environmental Sensor
Ei1025 Environmental Sensor

Discreet and secure, the Ei1025 Environmental Sensor can be placed throughout a property to monitor...

Read More >>

Ei1000G SmartLINK Gateway
Ei1000G SmartLINK Gateway

The Gateway and Cloud portal use Aico’s SmartLINK technology to bring together data from all...

Read More >>

Ei3030 Multi-Sensor Fire and Carbon Monoxide Alarm
Ei3030 Multi-Sensor Fire and Carbon Monoxide Alarm

The Ei3030 is a multi-sensor Fire & Carbon Monoxide (CO) Alarm. Containing our proven and dependable...

Read More >>

CONSTRUCTION VIDEOS - LATEST VIDEOS

Forma aluminium column casings for Winchester College
Forma aluminium column casings for Winchester College

In progressive and dynamic business sectors, such as construction, it’s natural to be forward...

Watch Now >>

Decorative metal bulkheads & column casings for Tesco Extra, Birmingham
Decorative metal bulkheads & column casings for Tesco Extra, Birmingham

Decorative aluminium horizontal bulkheads more than 100 metres long have been supplied and installed...

Watch Now >>

Vecta building linings for the perfect finish
Vecta building linings for the perfect finish

More than 150 sq.m of Vecta aluminium wall lining and a feature bulkhead have been manufactured and...

Watch Now >>