Rising Costs Mean Mixed Start to 2017 for Construction Industry

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Rising Costs Mean Mixed Start to 2017 for Construction Industry

A strong start to 2017 was reported by SME builders, civil engineering firms, product manufacturers and specialist contractors, with increases in sales, output and workloads in the first quarter (Q1), driven by increased demand.

The Construction Products Association (CPA)’s Construction Trade Survey Q1 also painted a positive picture for 2017, with companies reporting an optimistic outlook for the year ahead.

However, weak activity in the industrial and commercial sectors resulted in main building contractors experiencing a decrease in activity, with 31% reporting that construction output fell in the first quarter of 2017 compared with a year ago. In addition, Q1 order books were reported to be lower across the majority of sectors for both main contractors and civil engineering contractors.

The latest statistics also highlighted that past depreciations of Sterling continue to exert upward pressure on input costs across the industry. An increase in overall costs was reported by 84% of civil engineering contractors, whilst 86% of main contractors, 93% of heavy side manufacturers and 93% of light side manufacturers also reported a rise in raw materials costs.

Commenting on the survey, Rebecca Larkin, Senior Economist at the CPA, said: “Q1 was a positive opener to 2017 for product manufacturers, specialist building contractors and SME builders, continuing the momentum built up over the last four years of growth.

“For main contractors, however, it was only private sector house building that provided the bright spots of activity during the quarter. Falling orders in the commercial and industrial sectors also spilled over into infrastructure in Q1 and signal a broader weakness ahead.

“Furthermore, in contrast to the continued rise in costs reported during the quarter, particularly for imported raw materials, building contractors’ tender prices are moving in the opposite direction.  This suggests that it is margins, rather than clients, that are bearing the brunt of cost inflation.”

Suzannah Nichol, Chief Executive of Build UK added: “Despite mixed rates of output growth in the first quarter of 2017, it is good news that enquiries for future work grew strongly with confidence in the project pipeline for 2017. But increased costs are beginning to bite. The majority of the supply chain reported increased costs in Q1, especially for materials. If this level of price increase continues, current and future projects could start to feel the squeeze.”

Key survey findings include:

  • 31% of main building contractors, on balance, reported that construction output fell in the first quarter of 2017 compared with a year ago
  • All specialist contractors reported a rise in output during Q1
  • 8% of civil engineers, on balance, reported an increase in workloads during Q1
  • 21% of SME contractors reported increased workloads in Q1 compared to three months earlier
  • Main contractors reported lower orders in all sectors except private housing
  • 9% of civil engineering firms reported a decrease in new orders in Q1
  • 40% of SMEs and 50% of specialist contractors reported an increase in enquiries in Q1
  • Overall costs increased for 84% of civil engineers contractors, whilst 86% of main contractors, 93% of heavy side manufacturers and 93% of light side manufacturers reported raw materials costs rose in Q1

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