Construction Growth in Q3 but weak orders worrying

The Construction Products Association’s Construction Trade Survey for Q3 shows that despite rising costs and diverging performance across sectors, the industry extended its run of growth to 18 quarters.

The survey of main contractors, SME builders, civil engineering firms, product manufacturers and specialist contractors found that the construction supply chain reported increases in sales, output and workloads in the quarter, driven by increased demand in private housing, repair and maintenance and infrastructure.

Net balances for enquiries and expected product sales for the year ahead remained muted, however, and contractors’ order books were sustained by work in only three sectors: private housing, housing R&M and non-housing R&M.

New orders were reported lower in sectors such as commercial, industrial and public non-housing, which account for one-third of construction output.

The effects of the sterling’s depreciation in the second half of 2016, following the EU referendum, are still pervasive, with 92% of main contractors, 85% of heavy side manufacturers, and all light side manufacturers reporting a rise in raw materials costs in Q3.

In spite of this, only a small proportion of contractors are increasing tender prices and, as a result, 31% of main contractors reported a fall in margins, the worst balance in five years.

Rebecca Larkin, senior economist at the CPA, said: “In common with the wider economy, the construction industry continues to experience cost inflation, particularly for raw materials. A clear consequence of the supply chain trying to absorb these higher costs is the fall in contractors’ profit margins since the start of the year. Combined with a smaller pipeline of upcoming work in some key sectors, the survey’s more mixed view on near-term industry prospects is not surprising.”

Suzannah Nichol, chief executive of Build UK, said: “A lack of required skills remains a concern, with labour availability issues continuing to impact on contractors’ business performance. Build UK believes industry needs to recruit, train and retain a skilled workforce, and we are working with members, government and other key stakeholders to ensure that this remains a key priority.”