Cost pressures cast a shadow over Construction growth says CPA

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.

Construction Output set to fall for first time in 6 years but growth predicted for 2019 and 2020

The UK’s construction industry is expected to experience a moderate fall in 2018, following five years of consecutive growth. The Construction Products Association’s Summer Forecasts anticipate growth for the whole of 2018 to fall 0.6%, before accelerating to 2.3% in 2019 and 1.9% in 2020, with house builders the primary drivers of growth for the whole industry.

In private housing, first-time buyer demand, enabled by the government’s Help to Buy scheme, continues to boost sentiment and encourage an increase in housebuilding activity outside London. The sector’s output is forecast to rise 5% in 2018 and 2% in 2019. The infrastructure sector also remains a primary driver of growth for the whole construction industry, with output forecast to hit a historic high of £23.6 billion by 2020, driven by large projects such as HS2 and Hinkley Point C. However, the sector will be hoping government will push to ensure delivery on the ground with work on both projects already significantly delayed. Without the forecast growth in infrastructure and private housing activity, total construction output would fall by 3% in 2018 and remain flat in 2019.

The demise of Carillion resulted in a poor performance for the industry at the start of the year, which combined with the bad weather, lost UK construction £1 billion of work. It is estimated 60% of this work may be recovered, but Carillion’s collapse will cause further delays at two major hospitals as work on the £335 million Royal Liverpool University and Birmingham’s £350 million Midland Metropolitan hospitals is on hold until at least 2019.

Brexit uncertainty continues to drive the sharpest decline for construction in the commercial sector, particularly felt in the offices sub-sector which is expected to fall 20% in 2018 and a further 10% in 2019. Meanwhile, the shift to online shopping is causing woes for the high street, with new retail construction expected to fall by 10% this year.

Noble Francis, Economics Director at the Construction Products Association said: "Clearly the first quarter of the year was difficult for the industry due to the demise of Carillion and the bad weather. Things improved markedly in the second quarter due to a catch-up in work as we would have expected but, overall, it’s mixed fortunes for contractors at the moment. On the positive side, house builders are keen on accelerating building rates outside of London and that is expected to be enough to offset sharp falls in house building in the capital.

"Firms working on major infrastructure projects also have a lot of work in the pipeline. Infrastructure output is forecast to rise by 3% in 2018 and 13% in 2019. This growth is highly dependent on large projects such as HS2 and Hinkley Point C, the first of the new nuclear power stations but, as ever, there remain concerns about government’s ability to deliver infrastructure projects without the cost overruns and delays that we have seen on Crossrail and HS2 recently.

"On the negative side, the elephant in the room is clearly Brexit uncertainty, which has had a big effect on international investment, especially where it is high up-front investment for a long-term rate of return, which is now highly uncertain. It badly affects demand in sectors such as prime residential in London, commercial offices towers and industrial factories, which is dependent on manufacturing.

"Overall in construction, there is forecast to be a slight fall in activity, of -0.6%, in 2018 after five consecutive years. However, in 2019, we are anticipating of growth of 2.3% due to house building and infrastructure."

Hot Summer starts to make up for cold Winter for Construction

The Construction Products Association’s State of Trade Survey for 2018 Q2 shows that the £56 billion UK construction products manufacturing industry began its catch-up of activity lost to adverse weather conditions during the first three months of the year.

Construction product sales act as an early indicator of wider activity in the supply chain and these results signpost to a rise in total construction output levels over the next 12 months.

Heavyside manufacturers reported an increase in activity, with sales in Q2 rising for 40% of firms, following two previous quarters of falling sales. For light side manufacturers,  29% of firms on balance reported a decrease, which was the weakest performance since 2012 Q3. This reflects the lagged impact of the industry’s decline in Q1, as light side products such as insulation, boilers, glass and lighting tend to be used at the end of the building process. 

Manufacturers anticipate a return to growth in the coming quarters, with 43% of heavy side firms and 27% of those on the light side expecting an increase in sales over the next 12 months. Input cost inflation continues to persist, however, particularly for the energy-intensive heavy side, which is experiencing the pass-through of rising global commodity prices on fuel and energy costs.

Rebecca Larkin, CPA Senior Economist said: “These results fit the profile of construction catch-up from a weather-affected Q1. As we’ve moved from a freezing Spring to a hot Summer, groundworks and work on external structures has been able to resume, and this has been reflected in increased sales for heavy side manufacturers. The disruption in Q1 is likely to have delayed interiors and finishing works starting on site which is evident in the decline in light side sales during Q2.

“Manufacturers’ product sales, capacity utilisation and new hiring are all still expected to increase over the next year, but price pressure is coming from all directions across fuel, energy, raw materials and labour, which is likely to be felt throughout the construction supply chain.”

Key survey findings include:

• A balance of 40% of heavy side firms reported that construction product sales rose in the second quarter of 2018 compared with the first quarter. 29% of light side firms, on balance, reported a fall in sales in Q2.
• On an annual basis, sales increased for 20% of heavy side firms and 12% of firms on the light side, on balance
• On balance, 43% of heavy side manufacturers anticipated a rise in sales in the next year, increasing from a balance of 37% in the previous quarter
• On the light side, 27% of firms expected an increase in product sales in the next year, compared to a balance of 16% in 2018 Q1
• 27% of heavy side firms increased headcount in the past year, the lowest balance in nearly five years
• Annual cost increases were reported by 73% of manufacturers on the heavy side and 50% on the light side
• Raw materials costs rose according to 87% of heavy side manufacturers and 88% of those on the light side.

Image: Via Shutterstock

Construction Products Manufacturing freezes in Q1 2018

The CPA’s State of Trade Survey for 2018 Q1 shows that the £56 billion UK construction products manufacturing industry suffered a weak start to 2018, in a quarter that combined the liquidation of Carillion and several days of disrupted activity due to snow and freezing temperatures.

Heavy side manufacturers recorded the lowest balance in five years with 15% of firms reporting a decline in sales in Q1, following a previous quarter of falling sales in 2017 Q4. For light side manufacturers, no firms on balance reported either an increase or a decrease, which was the weakest performance since 2013 Q2. Construction product sales act as an early indicator of wider construction activity and these results signal a noticeable dip in total industry output for Q1.

Manufacturers anticipate a return to growth in the coming quarters, but rising costs continue to act as a headwind. 90% of heavy side manufacturers and 84% of those on the light side reported a rise in raw materials costs in Q1, whilst the same proportions reported an increase in wages and salaries. In addition, fuel costs rose for 90% of heavy side manufacturers.

Rebecca Larkin, CPA Senior Economist said: “It was always unlikely that heavy side manufacturers would avoid the snow disruption, with aggregates quarries unable to operate and pauses in activities such as groundworks and bricklaying affecting demand for products and materials from construction sites. In addition, manufacturing capacity in this energy-intensive sector of the industry is likely to have been temporarily reduced by the National Grid’s gas deficit warning at the beginning of March.

“It appears from the forward-looking indicators that Q1 was just a weather-related blip, as 42% of heavy side manufacturers anticipate sales rising in Q2 and 37% see sales rising over the next 12 months. However, no light side manufacturers expect sales to increase in the next quarter and only 16% anticipate a rise over the course of the year, likely to reflect the lagged impact of any pauses in activity in Q1 on demand for these non-structural and finishing products that tend to be used nearer the end of the building process.”

Key survey findings include:

• A balance of 15% of heavy side firms reported that construction product sales fell in the first quarter of 2018 compared with the fourth quarter of 2017. No light side firms, on balance, reported a rise in sales in Q1
• On an annual basis, sales decreased for 5% of heavy side firms but rose for 10% of firms on the light side, on balance
• On balance, 37% of heavy side manufacturers anticipated a rise in sales in the next year, increasing from a zero balance in the previous quarter
• On the light side, 16% of firms expected an increase in product sales in the next year, compared to a balance of 10% in 2017 Q4
• Annual cost increases were reported by 90% of manufacturers on the heavy side and 79% on the light side
• Raw materials costs rose according to 90% of heavy side manufacturers and 84% of those on the light side
• 68% of heavy side manufacturers and 67% of light side manufacturers anticipate a rise in costs over the next 12 months.

Image: Shutterstock

Construction Products Sales expected to slow during 2018

The UK’s £56.5 billion construction product manufacturing industry is expected to slow this year as the sector lost its pace at the end of 2017, according to the CPA's State of Trade Survey for 2017 Q4.

The survey results showed activity is expected to weaken this year as inflation continues to rise, economic growth slows, and the UK’s post-Brexit deal still remains unclear. It is likely the first half of 2017 was a peak for the industry, with the survey reporting early signs of slowing activity in the final three months of 2017, and construction product manufacturers envisaging a broader softening in market conditions during 2018.


The survey results showed that 6% of heavy side manufacturers, such as steel, bricks, timber and concrete, reported a decrease in product sales in Q4, compared to 10% reporting a rise in Q3. This was the first negative balance since 2013 Q1. In contrast, sales on the light side, which includes non-structural and finishing products such as insulation, boilers, glass and lighting, were still reported higher by half of manufacturing firms.

Whilst a modest pickup in sales is anticipated in the first quarter of 2018, the survey showed a weakness in sales expectations extending across the next 12 months, for both heavy side and light side firms. No heavy side firms and only 10% of those on the light side expected an increase in product sales during 2018.

Rebecca Larkin, CPA Senior Economist said: “The survey echoes other industry data that has shown the prolonged period of growth in construction activity since 2013 started to lose pace in the closing months of 2017. Of note are the signals of a leaner 2018 with heavy side expectations for sales growth at their lowest in five years, reflecting a backdrop of a slower economy, Brexit uncertainty and falling new orders in key sectors such as commercial offices.

“As well as weaker market conditions, it appears as though a further rise in costs will strengthen the headwinds facing industry. In Q4, 87% of heavy side firms and 91% of light side firms reported a rise in raw materials costs, whilst on the energy-intensive heavy side, fuel and energy costs were reported higher for 93% of firms. This illustrates the lagged pass-through of the 2016 Sterling depreciation and rising global commodity prices into input cost inflation that is still to filter down the construction supply chain. Three-quarters of product manufacturers expect inflationary pressures to linger into 2018.

Key survey findings include:

• A balance of 6% of heavyside firms reported that construction product sales fell in the fourth quarter of 2017 compared with the third quarter. 50% of lightside firms reported a rise in sales in Q4
• On an annual basis, sales rose for 13% of heavy side firms and half of firms on the lightside, on balance
• On balance, no heavyside manufacturers anticipated a rise in sales in the next year, decreasing from a balance of +28% in the previous quarter
• On the light side, 10% of firms expected an increase in product sales in the next year, compared to a balance of 33% in Q3
• Annual cost increases were reported by 87% of manufacturers on the heavy side and 80% on the lightside
• Raw materials costs rose according to 87% of heavyside manufacturers and 91% of those on the lightside
• 73% of heavyside manufacturers and 80% of lightside manufacturers anticipate a rise in costs over the next year.

Image from Shutterstock

CPA responds to the Autumn Budget 2017

The Construction Products Association (CPA) has produced an excellent response to last weeks' Budget and detailed all the relevant issues relating to the building and construction industry. Their response it reproduced, in full, below.

Against a backdrop of slowing economic growth, and continued uncertainty over the shape Brexit, the Chancellor delivered his first Autumn Budget promising a forward-looking economy on a new path with its European neighbours.

The Office for Budget Responsibility provided a downgrade on the projected growth rate for 2017, blaming it on weak productivity. The OBR cut growth forecasts from 2% to 1.5%, and for 2021 instead of the projected 2.0% the economy is expected to grow 1.5%.

The headlines were saved for housing with the Chancellor announcing that as of today, he is abolishing the stamp duty charge for first time homebuyers for properties up to £300,000, and on the first £300,000 of the purchase price of properties up to £500,000. The Chancellor also committed £44 billion of capital funding, loans and guarantees, including an additional £15.3 billion in new measures, to allow the delivery of 300,000 net additional homes per year by the mid-2020s, compared to 217,000 in 2016/17. To ensure a workforce is able to deliver these homes, an additional £34 million was promised to develop construction skills across the country.

On the construction sector in general, the government’s long-term ambition of increasing R&D investment will see £170 million for innovation to transform productivity in the construction sector. The government also reaffirmed the steps being taken to improve infrastructure delivery, and has promised to use its purchasing power to drive adoption of modern methods of construction, such as offsite manufacturing. Furthermore, the Infrastructure and Projects Authority will publish an update to the National Infrastructure and Construction Pipeline in December 2017, setting out a 10 year projection of public and private investment in infrastructure of around £600 billion.

Other content relevant to construction product manufacturers and distributors include:

• The government is working with industry to finalise a Construction Sector Deal that will support innovation and skills in the sector, including £170 million of investment through the Industrial Strategy Challenge Fund.
• The Budget commits a further £2.7 billion to the competitively-allocated Housing Infrastructure Fund (HIF) in England. This takes the total investment in the HIF to £5 billion.
• A £1.7 billion Transforming Cities Fund to improve local transport connections and £385 million for projects to develop next generation 5G mobile and full-fibre broadband networks, both funded from the NPIF.
• For business rates, the government will bring forward to 1 April 2018 the planned switch in indexation from RPI to the main measure of inflation (currently CPI).

Economic and Fiscal Overview

The Office for Budget Responsibility (OBR) has published its latest forecasts on the economic and fiscal outlook.

http://cdn.budgetresponsibility.org.uk/Nov2017EFOwebversion.pdf

The OBR has revised down its UK GDP growth forecasts for the next four years, reflecting a significant downward revision to its forecast for productivity growth and weaker business investment. The OBR now expects the UK economy to grow 1.5% in 2017 and 1.4% in 2018, a downward revision from 2.0% and 1.6% respectively, forecast in the March outlook. Furthermore, GDP growth for 2019 has been downgraded to 1.3% from 1.7% projected previously, as public spending cuts intensify and Brexit-related uncertainty continues to weigh on activity. In 2020, growth is expected to remain at 1.3%, before rising to 1.5% in 2021 and 1.6% in 2022, underpinned by a modest improvement in productivity growth.

Inflation expectations have been revised up for 2017 by 0.3 percentage points. Inflation is forecast at 2.7% for 2017, up from 2.4% anticipated in the March publication, reflecting the impact of the past Sterling’s depreciation on import prices and rising global commodity prices. However, as these effects begin to fade, the annual rate of inflation is expected to ease in the subsequent two years. In 2018 and 2019, inflation is forecast at 2.4% and 1.9%, compared to rates of 2.3% and 2.0% respectively, predicted in March. Looking ahead, the OBR projects CPI inflation to remain steady at the Bank of England’s 2.0% target each year between 2020 and 2022, unchanged from its previous forecasts.

Business investment is forecast to increase 2.5% in 2017, an upward revision from the 0.1% fall anticipated in March, due to ONS data revisions. In both 2018 and 2019, business investment is forecast to increase 2.3%, a downward revision from rate of 3.7% and 4.2% predicted in the previous OBR outlook. Overall, business investment is expected to remain subdued in the near-term, as ongoing Brexit-related uncertainty continues to dent activity. Business investment is projected to increase 2.4% each year between 2020 and 2022.

Public sector net borrowing is estimated to have totalled £49.9 billion during the 2017/18 financial year, a downward revision from £58.3 billion expected in the March Budget. Thereafter, public sector net borrowing is forecast to fall each year between 2018/19 and 2022/23, but will fall by £23.8 billion less between 2017/18 and 2021/22 than in the March forecast due to lower productivity growth reducing tax receipts. Total public sector net debt as a percentage of GDP is expected at 86.5% in 2017/18, down from 88.8% in the March Budget, reflecting the reclassification of English housing associations to the private sector. Thereafter, public sector net debt as a percentage of GDP is projected to decline each year, reaching 79.3% in 2021/22.

Industry and sector policies

The government made a series of new announcements relevant to businesses and industry. These include:

Skills and R&D

• The government is working with industry to finalise a Construction Sector Deal that will support innovation and skills in the sector, including £170 million of investment through the Industrial Strategy Challenge Fund.
• The government is taking a series of steps to improve the cost effectiveness, productivity and timeliness of infrastructure delivery. The government will use its purchasing power to drive adoption of modern methods of construction, such as offsite manufacturing. Building on progress made to date, the Department for Transport, the Department of Health, the Department for Education, the Ministry of Justice, and the Ministry of Defence will adopt a presumption in favour of offsite construction by 2019 across suitable capital programmes, where it represents best value for money.
• The government will establish a partnership between employers, the Trades Union Congress and the Confederation of British Industry, to develop the National Retraining Scheme. Together they will help set the strategic priorities for the scheme and oversee its implementation, working with new Skills Advisory Panels to ensure that local economies’ needs are reflected.
• As a first step, the National Retraining Partnership will oversee targeted short-term action in sectors with skills shortages, initially focussing on construction and digital skills. The government will support the construction industry to help ensure that there is a workforce fit to build 300,000 homes, providing £34 million to scale up innovative training models across the country, including a programme in the West Midlands. Construction skills will also be a focus for the National Retraining Scheme.
• The government announced T levels at Spring Budget 2017. As implementation gets underway, the government will invest up to £20 million to help teachers and further education colleges prepare for this change.
• The government will continue to work with employers on how the apprenticeship levy can be spent so that the levy works effectively and flexibly for industry, and supports productivity across the country.
• The Budget invests a further £2.3 billion in R&D in 2021/22 from the NPIF, and increases the R&D expenditure credit to 12%, towards the government’s ambition to raise the level of investment in R&D in the economy to 2.4% of GDP.

Housing

• The government is making available £15.3 billion of new financial support for housing over the next five years, bringing total support for housing to at least £44 billion over parliament.
• The government will permanently raise the price at which a property becomes liable for stamp duty land tax (SDLT) to £300,000 for first‑time buyers to help young people buy their first home. The relief will not apply for purchases of properties worth over £500,000. 95% of first‑time buyers that pay SDLT will benefit, up to a maximum of £5,000, and 80% of first‑time buyers will pay no SDLT at all.
• The government is keen to encourage owners of empty homes to bring their properties back into use. To help achieve this, local authorities will be able to increase the council tax premium from 50% to 100%.
• The government will consult on a new policy whereby local authorities will be expected to permission land outside their plan on the condition that a high proportion of the homes are offered for discounted sale for first‑time buyers, or for affordable rent. This will exclude land in the Green Belt.
• The government will provide £1.1 billion for a new Land Assembly Fund, funded from the NPIF. The new fund will enable Homes England to work alongside private developers to develop strategic sites, including new settlements and urban regeneration schemes.
• The government will bring together public and private capital to build five new garden towns, using appropriate delivery vehicles such as development corporations, including in areas of high demand such as the South East.
• The Budget commits a further £2.7 billion to the competitively-allocated Housing Infrastructure Fund (HIF) in England. This takes the total investment in the HIF to £5 billion.
• The government will provide a further £630 million through the NPIF to accelerate the building of homes on small, stalled sites, by funding on‑site infrastructure and land remediation.
• The Budget announces a further £1.5 billion for the Home Building Fund, providing loans specifically targeted at supporting SMEs who cannot access the finance they need to build.
• The government will explore options with industry to create £8 billion worth of new guarantees to support housebuilding, including SMEs and purpose built rented housing (Build to Rent).

National and Regional Infrastructure

• The Infrastructure and Projects Authority will publish an update to the National Infrastructure and Construction Pipeline in December 2017. This will set out a 10-year projection of public and private investment in infrastructure of around £600 billion.
• £300 million will be spent on ensuring High Speed 2 (HS2) infrastructure can accommodate future Northern Powerhouse and Midlands rail services. Transport for the North and Midlands Connect are working up the case for these services. This will enable faster services between Liverpool and Manchester, Sheffield, Leeds and York, as well as to Leicester and other places in the East Midlands and London.
• Budget announces a £1.7 billion Transforming Cities Fund to improve local transport connections and commits £385 million to projects to develop next generation 5G mobile and full-fibre broadband networks, both funded from the NPIF. It will target projects which drive productivity by improving connectivity, reducing congestion and utilising new mobility services and technology. Half will be allocated via competition for transport projects in cities and the other half will be allocated on a per capita basis to the 6 combined authorities with elected metro mayors – £74 million for Cambridgeshire and Peterborough, £243 million for Greater Manchester, £134 million for Liverpool City Region, £80 million for West of England, £250 million for West Midlands and £59 million for Tees Valley – enabling them to invest in their transport priorities.
• The government is launching a new £190 million Challenge Fund that local areas around the country will bid for to encourage faster rollout of full-fibre networks by industry. Children in 100 schools around the country will be some of the first to benefit, starting with a pilot in the East Midlands in early 2018.
• The Budget also commits to specific improvements for the Tyne & Wear Metro, and rail and road connections in the Cambridge – Milton Keynes – Oxford corridor.
• The Budget announces the next steps for the North of Tyne devolution deal, paving the way for the area to elect a Mayor in 2019. This will see £600 million of investment in the region over 30 years and create a new mayor elected in 2019 with powers over planning and skills.
• The government will invest £337 million from the NPIF to replace the Tyne & Wear Metro’s nearly 40-year-old rolling stock with modern energy-efficient trains.
• The government has agreed a second devolution deal in principle with the West Midlands Mayor and Combined Authority to address local productivity barriers. This includes £6 million for a housing delivery taskforce, £5 million for a construction skills training scheme and a £250 million allocation from the Transforming Cities fund to be spent on local intra-city transport priorities.
• The government has agreed a housing deal with Oxfordshire for 100,000 homes by 2031, and is working with Central and Eastern sections on commitments in 2018. The government will also consider significant new settlements and the potential role of development corporations to deliver these using private finance.
• The government will also make available £300,000 to co-fund a study of opportunities for new stations, services and routes across the Oxfordshire rail corridor.
• The government expects authorities and delivery bodies in the Cambridge – Milton Keynes – Oxford corridor to use existing mechanisms of land value capture and the new powers (subject to consultation) announced at the Budget to capture rising land values from the additional public investment. The government will also encourage authorities to explore the introduction of a Strategic Infrastructure Tariff, in addition to the Community Infrastructure Levy (CIL), supported by appropriate governance arrangements. These approaches will require developers to baseline their contributions towards infrastructure into the values they pay for land.
• Greater Manchester and the government will work in partnership to develop a local Industrial Strategy. The government will provide a £243 million allocation from the Transforming Cities Fund and will continue to work with Transport for Greater Manchester to explore options for the future beyond the Fund, including land value capture.
• The government will pilot a manufacturing zone in the East Midlands. This will reduce planning restrictions to allow land to be used more productively, providing certainty for business investment, and boosting local productivity and growth.
• The government will invest in infrastructure upgrades that will provide direct services from Pembroke Dock to London via Carmarthen on new, state of the art Intercity Express trains. Additionally, the Department for Transport continues to develop proposals for a number of potential rail schemes within Wales. This includes station improvements at Cardiff Central Station and Swansea, improving Cardiff to Severn Tunnel Junction Relief Lines, and improving journey times between: Swansea and Cardiff; South Wales, Bristol and London; and on the North Wales Main Line. The government will also consider proposals to improve journey times on the Wrexham – Bidston line and provide necessary funding to develop the business case.
• The government is investing an additional £45 million in the Pothole Fund in 2017/18 to tackle around 900,000 potholes across England.
• The government announces £84 million for digital rail technology, including fitting state-of-the-art in-cab digital signalling across a range of trains. The government is allocating a further £5 million from the NPIF for development funding for a digital railway upgrade on the South East and East London Lines. The government will also fund a digital signalling scheme at Moorgate that will enable more frequent and reliable services.
• The government is announcing a new National Infrastructure Commission study on the future of freight infrastructure, to be published in Spring 2019. The study will look at urban congestion, decarbonisation and how to harness the potential of new technologies. This includes platooning, where trucks travel in convoy using smart technology to communicate.
• An additional £76 million will be spent on flood and coastal defence schemes over the next three years. This funding will better protect 7,500 households and boost food defence investment to over £2.6 billion between 2015/16 and 2020/21. Of this, £40 million will be focussed on deprived communities at high food risk, boosting local regeneration.
• The Budget will provide £5 million to help enable the South Tees Development Corporation to take ownership of the SSI Redcar Steelworks site, and the government will work with local partners to prepare the site for redevelopment.
• Following a consultation earlier this year, the government confirms that it will lend local authorities in England up to £1 billion at a new discounted interest rate of gilts + 60 basis points accessible for three years to support infrastructure projects that are high value for money. Details of the bidding process will be published in December 2017, and corresponding shares will be made available to local authorities in Scotland and Wales.

Capital Funding

• £3.5 billion of new capital funding for the NHS in England: £2.6 billion will be for local groups of NHS organisations (Sustainability and Transformation Partnerships) to deliver transformation schemes that improve their ability to meet demand for local services; £700 million to support turnaround plans in the individual trusts facing the biggest performance challenges, and tackle the most urgent and critical maintenance issues that trusts are facing; and £200 million will support efficiency programmes that will, for example, help reduce NHS spending on energy, and fund technology. This will also be accompanied by private finance investment in the health estate where this provides good value for money.

Taxes and levies

• As previously announced, to ensure that there is enough time to work with Parliament and stakeholders on the detail of reforms that will simplify the National Insurance Contributions (NICs) system, the government has announced that it will delay implementing a series of NICs policies by one year. These include the abolition of Class 2 NICs and reforms to the NICs treatment of termination payments. Also previously announced, the planned increase to the main rate of Class 4 NICs has also been cancelled.
• For business rates, the government will bring forward to 1 April 2018 the planned switch in indexation from RPI to the main measure of inflation (currently CPI).
• Legislating retrospectively to address the so-called “staircase tax” in business rates. Affected businesses will be able to ask the Valuation Office Agency (VOA) to recalculate valuations so that bills are based on previous practice backdated to April 2010 – including those who lost Small Business Rate Relief as a result of the Court judgement. The government will publish draft legislation shortly.
• The frequency with which the VOA revalues non-domestic properties will be moved to revaluations every three years following the next revaluation, currently due in 2022. To enable this, ratepayers will be required to provide regular information to the VOA on who is responsible for business rates and property characteristics including use and rent. The government will consult on the implementation of these changes in the Spring.
• Fuel duty will be frozen for an eighth year in 2018/19. The government will review whether the existing fuel duty rates for alternatives to petrol and diesel are appropriate, ahead of decisions at Budget 2018. In the meantime, the government will end the fuel duty escalator for Liquefied Petroleum Gas (LPG). The LPG rate will be frozen in 2018/19, alongside the main rate of fuel duty.
• The Heavy Goods Vehicle (HGV) VED and Road User Levy rates will be frozen from 1 April 2018. A call for evidence on updating the existing HGV Road User Levy will be launched this autumn. The government will work with industry to update the Levy so that it rewards hauliers that plan their routes efficiently, to encourage the efficient use of roads and improve air quality.
• The government is confident that the Total Carbon Price, currently created by the combination of the EU Emissions Trading System and the Carbon Price Support, is set at the right level, and will continue to target a similar total carbon price until unabated coal is no longer used. This will deliver a stable carbon price while limiting cost on business.
• Budget 2016 announced the rebalancing of gas and electricity main rates; the government will set CCL main rates for the years 2020-21 and 2021-22 at Budget 2018. In addition, and to ensure better consistency between portable fuels for commercial premises not connected to the gas grid, the government will freeze the CCL main rate for LPG at the 2019-20 level until April 2022. To ensure that the CCL exemptions for businesses that operate mineralogical and metallurgical processes remain operable after EU exit, the government will clarify the definition of the exemptions in Finance Bill 2018/19.
• The list of designated energy-saving technologies qualifying for an ECA, which support investment in energy-saving plant or machinery that might otherwise be too expensive, will be updated through Finance Bill 2017/18.
• The government will freeze Aggregates Levy rates for 2018/19 at £2 per tonne but will return to index-linking the Levy in the longer term. Following consultation, the government has decided against introducing an exemption from the Aggregates Levy for aggregates extracted when laying underground utility pipes.
• In response to the Office of Tax Simplification’s report ‘Value Added Tax: Routes to Simplifcation’, the government will consult on the design of the threshold, and in the meantime will maintain it at the current level of £85,000 for two years from April 2018.
• Following a consultation into options for tackling fraud in construction labour supply chains, the government will introduce a VAT domestic reverse charge to prevent VAT losses. This will shift responsibility for paying VAT along the supply chain to remove the opportunity for it to be stolen. Changes will have effect on and after 1 October 2019. The long lead-time reflects responses to the consultation and the government’s commitment to give businesses adequate time to prepare for the change.

Commercial Construction Activity has slowed for the first time in 5 months

The latest Construction Purchasing Manager's Index® (PMI®) has revealed that UK construction companies recorded another growth slowdown in July, reflecting lower volumes of commercial building and a softer expansion of housing activity.

The latest survey also revealed a reduction in new business volumes for the first time since August 2016, which acted as a headwind to job creation and input buying across the construction sector. 

At the same time, intense supply chain pressures continued in July and prices for construction materials increased at one of the sharpest rates since the first half of 2011.     

• Weakest construction performance since August 2016 
• Commercial work falls at fastest pace for 12 months   
• New orders decline, leading to softer job creation in July

Adjusted for seasonal influences, the IHS Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) dropped from 54.8 in June to 51.9 in July, to signal the weakest construction performance since August 2016. The latest reading was below the long-run survey average (54.5) and pointed to only a moderate pace of business activity growth.     

Lower levels of commercial construction were a key factor holding back overall business activity growth in July. Although only modest, the reduction in commercial activity was the fastest for 12 months. A number of survey respondents cited delays in decision making by clients, linked to worries about the economic outlook and heightened political uncertainty. 

Residential building remained the strongest performing category of activity in July, although the latest rise was the slowest for three months. The only upturn in output growth was recorded in the civil engineering sector.

Construction firms commented on greater reluctance to commit to new projects among clients in July. Weaker demand led to an overall reduction in new business volumes for the first time since the post-referendum rebound began in September 2016. Deteriorating order books resulted in more cautious staff recruitment policies, as highlighted by a moderation in employment growth to its slowest for 11 months. Sub-contractor usage also decreased during the latest survey period.       

July data suggested that UK construction companies responded to lower sales by tightening up purchasing activity at their business units. The latest increase in input buying was only marginal and the weakest since March. Delivery times for construction materials continued to lengthen sharply, which survey respondents linked to low stocks and stretched capacity among suppliers. Meanwhile, input cost inflation remained elevated and close to the peaks seen at the start of 2017, which was partly linked to prices for imported items.

Construction firms remained upbeat about their growth prospects, but the degree of optimism was the lowest since July 2016. This was attributed to heightened economic uncertainty and subdued confidence among clients.

Tim Moore, Associate Director at IHS Markit and author of the IHS Markit/CIPS Construction PMI®, said:

“July data reveals a growth slowdown in the UK construction sector, mainly driven by lower volumes of commercial development and a loss of momentum for house building. Weaker contributions from the cyclically sensitive areas of construction activity more than offset resilience in the civil engineering sector.

“Worries about the economic outlook and heightened political uncertainty were key factors contributing to subdued demand.

Construction firms reported that clients were more reluctant to spend and had opted to take longer in committing to new projects.“There was a knock-on impact for job creation and input buying following the largest downturn in order books since August 2016. However, supply chain pressures remained intense, reflecting low stocks among vendors, and materials prices continued to rise at one of the fastest rates seen for six years.

“The combination of weaker order books and sharply rising construction costs gives concern that an extended soft patch for the construction sector may be on the horizon.”

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, said:

“The number of new orders dropped significantly this month and at the fastest rate since August 2016, as commitment-averse clients contributed to the sector’s weak trajectory.

“Commercial building activity slowed for the first time in five months and was the main drag on the Index. Housing, the shining light of the sector eased marginally, but produced the slowest growth since April, as parallels with the darker days of Brexit, worries about the UK economy and post-election uncertainty can be seen across the construction sector.

“Continuing price pressures from the weak pound lingered, driving cost inflation near to a six-year peak, stifling purchasing activity and jobs growth. All in all, a challenging start to Q3 and there are possible roadblocks ahead for the sector in the rest of 2017, with longer lead times and suppliers struggling with stock levels, which adds insult to injury.”

Read the key facts of the 2017 Q2 State of Trade Survey for UK Construction from the CPA

The CPA’s State of Trade Survey for 2017 Q2 reveals that UK construction product manufacturers experienced growth in sales and activity for the 17th consecutive quarter, but higher input costs and rising uncertainty has dampened manufacturers’ views for the near-term future.

Results of the survey showed that among heavy side manufacturers, only 7% anticipated a rise in sales in the next quarter, a decline from the 68% who anticipated a rise when asked in 2017 Q1. A sharp rise in input costs was also reported in Q2, with 93% of heavy side manufacturers and all of those on the light side reporting an increase in costs compared with a year earlier.

The strongest inflationary pressures came from raw materials, fuel and energy, owing to depreciation in Sterling during 2016, alongside skills shortages pushing up wage bills.


The construction products manufacturing industry has an annual turnover of £55 billion, directly providing jobs for 300,000 people across 22,000 companies. Products range from ‘heavy side’ materials such as steel, bricks, timber and concrete to ‘light side’ products such as insulation, boilers, glass and lighting. On an annual basis, 47% of heavy side firms reported that sales had increased in Q2, whilst on the light side, 45% of firms reported that sales were higher than a year earlier.

Rebecca Larkin, CPA Senior Economist said: “It was an eventful quarter on the political front, with the announcement of a snap general election and the resulting hung parliament adding to existing uncertainty over the path for Brexit negotiations. Despite healthy growth in the second quarter, construction product manufacturers have turned more pessimistic over performance for the rest of the year, reigniting concern that the triple hit of imported inflation in raw materials, higher fuel and energy prices and the persistent pressure on labour costs will have a negative impact on demand and construction activity over the next 12 months.

 "An increase in overall costs was reported by 93% of heavy side manufacturers and all of those on the light side. Inflation is expected to endure as similar proportions anticipate that costs will continue to climb over the next year. Government’s ability to progress the pipeline for large public sector and infrastructure projects is now more important than ever as a means of sustaining activity when private sector decision-making may be stalling.”

 Key survey findings include:

• A balance of 40% of heavy side firms and 55% of light side firms reported that construction product sales rose in the second quarter of 2017 compared with the first quarter
• On an annual basis, sales rose for 47% of heavy side firms and 45% of firms on the light side, on balance
• On balance, 7% of heavy side manufacturers anticipated a rise in sales in Q3, decreasing from a balance of 68% in the previous quarter
• On the light side, 20% of firms expected an increase in product sales in the next quarter, compared to a balance of 47% in Q1
• Annual cost increases were reported by 93% of heavy side manufacturers and 100% of those on the light side
• Raw materials costs rose according to 87% of heavy side manufacturers and 100% of those on the light side
• 93% of heavy side manufacturers and 90% of light side manufacturers anticipate a rise in costs over the next year.

The Construction Products Association represents the UK’s manufacturers and distributors of construction products and materials.  We are committed to raising the profile of our industry and members’ businesses, helping grow the market and reducing regulatory risk.  The sector directly provides jobs for 300,000 people across 22,000 companies and has an annual turnover of more than £55 billion.  The CPA is the leading voice to promote and campaign for this vital UK industry.

The CPA produces a range of economic reports including the quarterly Construction Industry Forecasts, Construction Trade Surveys and the State of Trade Surveys.  All are available to members or subscribers via our website.

Image: From shutterstock_136321814

Read the Construction Products Association's survey on Q1 of 2017

The industry reported a strong start to 2017 with increases in sales, output and workloads in Q1 driven by increased demand, according to the Construction Products Association’s (CPA) Construction Trade Survey Q1, which 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 the 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 heavyside manufacturers and 93% of lightside manufacturers also reported a rise in raw materials costs.

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.”

Key findings from the survey:

• 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
• On balance, 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, on balance
• 40% of SMEs and 50% of specialist contractors reported an increase in enquiries in Q1, on balance
• Overall costs increased for 84% of civil engineers contractors, while 86% of main contractors, 93% of heavy side manufacturers and 93% of light side manufacturers reported raw materials costs rose in Q1.

UK construction product manufacturers registered an increase in sales and activity in the first quarter of 2017

The CPA’s latest State of Trade Survey reports that UK construction product manufacturers registered an increase in sales and activity in the first quarter of 2017. This extends the industry’s period of growth to four years, despite a backdrop of increasing input cost pressures.

The construction products manufacturing industry has an annual turnover of £55 billion, directly providing jobs for 300,000 people across 22,000 companies. Products range from ‘heavy side’ materials such as steel, bricks, timber and concrete to ‘light side’ products such as insulation, boilers, glass and lighting.  On an annual basis, 65% of heavy side firms reported that sales had increased in Q1, whilst on the light side, 38% of firms reported that sales were higher than a year earlier.

In Q1, 73% of heavy side manufacturers and 80% of those on the light side reported an increase in costs, with input costs for raw materials, fuel and energy exerting the strongest pressures, owing to the depreciation in Sterling during 2016. Nevertheless, manufacturers envisage a continued rise in activity in the second quarter of this year. Among heavy side manufacturers, 68% on balance anticipate a rise in sales in Q2 and a balance of 47% of light side manufacturers anticipate a rise during the same period.

Rebecca Larkin, CPA Senior Economist said: “Construction product manufacturers have shaken off the pessimism over future performance evident at the end of last year and appear more confident that further rises in costs will not have a negative impact on demand and construction activity over the next 12 months.

“Heavy side manufacturers were most exposed to the effects of Sterling’s depreciation with 93% of firms reporting a rise in raw materials costs and 69% reporting higher costs for fuel and energy in Q1. On balance, they were also the most optimistic on near-term sales expectations, implying that the wider construction supply chain is actively managing its cost pressures.  

“With Brexit-related uncertainty still providing a downside risk to decision-making, however, it is important that government provides certainty over the pipeline for large public sector and infrastructure projects that will help sustain activity.”

Key survey findings include:

• A balance of 45% of heavy side firms and 38% of light side firms reported that construction product sales rose in the first quarter of 2017 compared with the fourth quarter of 2016
• On an annual basis, sales rose for 65% of heavy side firms and 38% of firms on the light side, on balance
• On balance, 68% of heavy side manufacturers anticipated a rise in sales in Q2, improving from a balance of 6% in 2016 Q4
• On the light side, 47% of firms expected an increase in product sales in the next quarter, compared to a balance of 29% in 2016 Q4
• Annual cost increases were reported by 73% of heavy side manufacturers and 80% of those on the light side
• Raw materials costs rose according to 93% of both heavy side and light side manufacturers
• 85% of heavy side manufacturers and all light side manufacturers anticipate a rise in costs over the next year

Take a look at the latest Construction Sales Job>>>

Monthly fall in Construction output in January, but still higher than a year ago

ONS figures published last week showed that construction output in January fell by 0.4% but rose by 2.0% compared with one year earlier. In addition, new orders in Q4 were 2.8% lower than Q3 and flat compared to a year ago.

Rebecca Larkin, Senior Economist at the Construction Products Association, commented: “Following an increase in output in Q4 last year, the overall fall in construction output in the opening month of 2017 was disappointing, with a decrease in housing, industrial, commercial and RM&I activity over the month.

“Furthermore, the construction new orders data from the ONS suggests that there may be continued weakness in activity in some sectors during 2017. Commercial new orders tailed off in the second half of 2016 and in Q4 were 10.6% lower than in Q3 and fell 24.1% from a year ago, and new orders in the industrial sector were the lowest in two years. Building work in both sectors requires a large up-front investment for a long-term rate of return and it appears decision-making has been clouded by a rise in economic uncertainty.

“Taking total new orders growth of 2.9% in 2016 as a whole, however, shows there remains an impetus for construction activity over the next 12 months. As echoed in our forecasts, output during 2017 will be driven by higher orders for housing – both private and public – as well as infrastructure and new public sector buildings such as schools and hospitals.”

Construction defies Brexit pessimism but costs a growing threat

The construction industry is defying all the Brexit pessimism still rife in the industry and the country as it grew for a fourteenth consecutive quarter in Q3 of 2017, according to the Construction Products Assocition. However, on the negative side costs were highlighted as a potential threat.

Firms across all areas of construction reported an increase in activity, including building contractors, SMEs, specialist contractors, civil engineers and product manufacturers. Indicators of future growth weakened, however, and activity may be severely hindered by inflationary pressures caused by rising wages and imported raw materials costs.
Rebecca Larkin, Senior Economist at the CPA, said, “Following the EU referendum, the entire construction supply chain reported favourable conditions and growth in activity in Q3. Forward-looking expectations for Q4 and the year ahead were more pessimistic, with the majority of orders and enquiries balances the lowest in two years, or driven by a single sector:  private housing.
“A further factor that stood out as a downside risk to activity in the near-term is the sharp rise in the cost of imported raw materials due to the recent depreciation in the Sterling, which is providing a dual hit to construction costs alongside existing wage inflation pressures.”
Key survey findings include:

• 33% of main building contractors, on balance, reported that construction output rose in the third quarter of 2016 compared with a year ago
• A balance of 7% of specialist contractors reported a rise in output during Q3
• 1% of civil engineers, on balance, reported an increase in workloads during Q3
• On balance, 18% of SME contractors reported increased workloads in Q3 compared to three months earlier
• Main contractors reported an increase in orders in private housing but reported a decrease in all other sectors
• 6% of SMEs and no specialist contractors reported an increase in enquiries in Q3, on balance
• 3% of civil engineering firms reported an increase in new orders in Q3, on balance
• 54% of main contractors reported difficulties recruiting bricklayers, 47% for carpenters and 43% for plasterers in Q3
• Overall costs increased for 59% of civil engineers contractors, whilst 66% of main contractors reported raw materials costs rose in Q3 compared with the previous quarter

Take a look at the latest construction sales jobs >>

CPA Forecasts mixed picture for Construction in 2017-2018 due to impact of uncertainty

The CPA’s latest forecasts highlight a mixed picture for the construction industry over the next two years due to the impacts of the uncertainty following the EU referendum. Overall, construction activity is expected to remain broadly flat in 2017 and 2018, but this masks a more nuanced picture at the sector level with growth in infrastructure and education offsetting falls in activity in sectors such as commercial offices and industrial factories.

Noble Francis, Economics Director, said: “Surveys across the industry highlight that activity in the construction sector has been sustained post-referendum, primarily based upon work on projects that were signed in the 12-18 months before the referendum. Looking forward, projects in the pipeline mean that construction activity is likely to continue throughout the rest of 2016 and the first half of 2017.


“From the second half of 2017, however, there is likely to be a clear division between the fortunes of privately-funded construction sectors – such as commercial offices and industrial factories – where the current uncertainty is likely to have a major impact, and those that are largely unaffected by post-referendum uncertainty – such as infrastructure and education – which are either publicly-funded or in regulated sectors.


“In construction sectors that are likely to be affected by the uncertainty, new investment has already fallen sharply but the lag between new contract awards and activity on the ground means that the weakening in sector output is likely to occur from the second half of next year. Commercial offices output is expected to decline 3.0% in 2017 and a further 10.0% in 2018. In the industrial factories sector, construction is expected to fall 11.6% between 2015 and 2018 as renewal and refurbishment of existing factories continues but large manufacturers make fewer new major investments.

“Within sectors that are expected to be largely unaffected by uncertainty, infrastructure will be a key driver of construction activity. Major projects such as HS2, Hinkley Point C nuclear power station and the Thames Tideway Tunnel are anticipated to provide growth of 6.2% in 2017 and 10.2% in 2018. Within education construction, activity is expected to rise 5.8% by 2018 due to public sector capital investment in the Priority School Building Programme and private sector investment in universities, including £1 billion programmes at Manchester, Cambridge and Glasgow.

“Outside of these sectors, private house building has not been affected by the uncertainty so far and is expected to rise by 2.0% in 2016. It is anticipated to remain flat in 2017 before a 2.0% fall in 2018 due to slower demand as UK economic growth and real wage growth both weaken considerably next year. However, private house building could be boosted by new measures in the government’s Autumn Statement on 23 November. The slower real wage growth in 2017, driven by higher inflation due to the recent falls in Sterling, is also expected to lead to a decline in retail construction of 4.0% in 2017 and 2.0% in 2018. This in a sector already hit by the shift away from traditional retail towards online shopping.“With an upcoming Autumn Statement, it is vital that the Chancellor focuses on reducing uncertainty for the private sector, sustaining the housing sector and ensuring delivery of education construction and major infrastructure projects already in the pipeline.”

Key results from the latest CPA construction forecasts include:

• Construction output to rise 0.6% in 2016, 0.3% in 2017 & 0.2% in 2018
• Offices construction to increase 8.0% in 2016 before a decline of 3.0% in 2017 and 10.0% in 2018
• Factories construction to fall 5.0% in 2016 and 2.0% in 2017
• Infrastructure work to rise by 6.2% in 2017 and 10.2% in 2018
• Private housing starts to rise 2.0% but remain flat in 2017 and fall 2.0% in 2018
• Retail construction to fall 8.0% in 2016 before falls of 4.0% in 2017 and 2.0% in 2018

Picture from Shutterstock: ref. shutterstock_317909906

CPA reports strong Q1 but 'uncertainty' is the theme for Q2

The Construction Product Association’s latest Construction Trade Survey shows that construction activity increased across the supply chain in Q1. This was the twelfth consecutive rise reported by construction product manufacturers representing the beginning of the supply chain, through to main contractors, specialist contractors, SME builders and civil engineers carrying out work on the ground.

Commenting on the survey, Rebecca Larkin, Senior Economist at the CPA, said, “After a slowdown at the end of last year, firms throughout the construction industry experienced a stronger opening quarter in 2016. In spite of this, the clear theme for Q2 is uncertainty, with main contractors reporting lower orders in all sectors as projects are paused or postponed ahead of the EU referendum in June.

“Beyond that, firms continued to indicate that a shortage of skilled workers is the largest threat to construction activity over the rest of the year. Main contractors reported difficulties in recruiting bricklayers, carpenters and plasterers in Q1, whilst low availability of labour was also reflected in upward pressure on wage bills among product manufacturers and civil engineers.”

Take a look at the latest Construction Sales Jobs >>

Suzannah Nichol, Chief Executive of Build UK said, “There continue to be mixed messages in terms of growth; however, industry intelligence shows increasing levels of activity over the last quarter. Employers are experiencing both rising material and labour costs as they head towards maximum capacity and this continues to highlight difficulties in recruiting appropriate skills at all levels. Build UK is leading the way on the war for talent with its members opening their projects up to the public during Open Doors week in June to attract the brightest talent to projects at a both local and national level.”

Richard Beresford, Chief Executive of the National Federation of Builders, said, “Uncertainty over the outcome of the EU referendum and over the nation’s defining issue – housing – is reflected in slowing industry performance. While homes will continue to be built, as long as there is uncertainty over government policy, we will not be able to provide anywhere near the number of homes people need.”

Key survey findings include:

• 19% of main building contractors, on balance, reported that construction output rose in the first quarter of 2016 compared with a year ago
• A balance of 38% of specialist contractors reported a rise in output during Q1
• On balance, 13% of SME contractors reported increased workloads in Q1 compared to three months earlier
• A balance of 13% of main contractors reported a decrease in orders in private housing and 42% reported a decrease in public new housing orders
• 25% of SMEs and 21% of specialist contractors reported an increase in enquiries in Q1, on balance
• 13% of civil engineering firms reported an increase in new orders in Q1, on balance
• 50% of main contractors reported difficulties recruiting carpenters, 40% for bricklayers and 36% for plasterers in Q1
• Overall costs increased for 74% of civil engineers contractors, whilst 42% of main contractors reported labour costs rose in Q1 compared with the previous quarter
• 100% of heavy side product manufacturers reported that wages and salaries increased from a year earlier