Cost pressures cast a shadow

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.

According to the Construction Products Association’s Construction Trade Survey for 2018 Q3, 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, while 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.

Rebecca Larkin, senior economist at the CPA, said: “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 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.”