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."

Construction Growth in Q3 but Weak Orders Weigh on the Outlook

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 eighteen 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.

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Commenting on the survey, Rebecca Larkin, Senior Economist at the CPA, said: "This 18th consecutive quarter of growth reported by the industry stands in contrast to the construction recession in preliminary GDP data from the ONS. There is a clear division in fortunes across sectors, however, with weakness in the commercial and industrial sectors offset by strength in new build private housing, a sector where demand and confidence remain supported by the Help to Buy equity loan.     

"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: "The latest Construction Trade Survey result highlights the industry's continued growth, contrary to ONS’s statistics, with both contractors and specialist contractors reporting a rise in output during Q3. However, 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."

CECA Director of External Affairs, Marie-Claude Hemming, said: "It is good news that our members see growth in infrastructure, to the benefit of businesses and communities across the country. However, uncertainty continues to act as a drag on the ability of the construction industry more generally to boost the economy. Ahead of the Autumn Budget, we are calling on the UK Government to commit to the projects outlined in the National Infrastructure Delivery Plan, to secure the foundations of a strong economy, drive productivity, and deliver post-Brexit growth."

Key survey findings include:

• 40% of main building contractors, on balance, reported that construction output rose in the third quarter of 2017 compared with a year ago
• 20% of specialist contractors reported a rise in output during Q3
• 24% of civil engineers, on balance, reported an increase in workloads during Q3
• On balance, 21% of SME contractors reported increased workloads in Q3 compared to three months earlier
• Main contractors reported higher orders in private housing and both housing and non-housing R&M
• 13% of civil engineering firms reported an increase in new orders in Q3, on balance
• 26% of SMEs but no specialist contractors reported an increase in enquiries in Q3, on balance
• Overall costs increased for 82% of civil engineering contractors, whilst 92% of main contractors, 85% of heavy side manufacturers and all light side manufacturers reported raw materials costs rose in Q3.

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UK construction industry growth slows to lowest in six years

Growth prospects for the construction industry in 2018 have been downgraded as the UK prepares to leave the EU, according to the latest forecasts by the Construction Products Association (CPA). Output is expected to soften as a slowing economy, falling real wages and rising costs adversely affect the industry, growth for 2018 is therefore only expected to rise by 0.7%, the slowest in six years, and a downward revision from 1.2% in previous forecasts.

View the Summer 2017 Construction Industry Forecast here.

For now, activity on site is high and output is expected to rise by 1.6% in 2017, a revision upwards from 1.3% in previous forecasts. This will be partly due to a sharp rise from new contracts and activity in the £6.9 billion public housing repair, maintenance and improvements to deal with short-term urgent measures that will need to be made in light of the Grenfell Tower fire.


An increase in infrastructure activity and private housebuilding are expected to be the primary drivers of growth over the next two years which will help offset a sharp fall in the commercial and industrial sectors. Growth in infrastructure will be due to major projects in rail and water & sewerage such as HS2 and the Thames Tideway Tunnel, with activity forecast to grow by 7.4% in 2017 and 6.4% in 2018. Growth will be reliant on delivery of these projects and the extent of the continued delays to main works at Hinkley Point C have resulted in it no longer included in the CPA forecasts.  

Growth for the industry in 2018 will also be heavily reliant on private housebuilding, however the sector is still reliant on Help to Buy equity loans to drive housebuilding numbers. The policy is in place until 2021, which is expected to support demand for new build and drive growth in private housing starts of 3.0% in 2017 and 2.0% in 2018. However, this is slower than in previous years given uncertainties over the strength of consumer confidence and falls in real earnings.

Looking further ahead, growth for 2019 is projected to be 1.8%, but given the unprecedented economic and political uncertainties following the lack of a significant majority for the UK government as the UK leaves the EU, the risks around this forecast are considerable.

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Noble Francis, Economics Director at the Construction Products Association said: "Construction firms are still reporting that activity remains high and there are still lots of cranes around. But there are clear signs that construction output is slowing and that next year, in particular, will be difficult for the industry. Prospects for construction have been adversely affected by slowing UK economic growth and falling real wages on one side and sharp rising costs on the other. A fall in new investment, especially where it is large international investment looking for a long-term rate of return, is forecast to lead to declines in the commercial and industrial sectors."

"Despite the slowdown in the general housing market, particularly in London, house builders continue to increase supply, albeit more slowly than in recent years. Currently, more than a third of new house building is being sustained by the government's Help to Buy and should continue to do so over the next 18 months if the wider economy and housing market don’t slow further. However, if economic conditions do deteriorate further, house builders can react quite quickly if necessary.

"Increases in infrastructure investment are also expected to offset these declines and be the key driver of any construction growth going forward. However, concerns regarding rising costs and delays to major projects continue to dog the sector so there remains a high degree of uncertainty around infrastructure growth in the next few years. And this infrastructure investment will be vital for the industry as a whole. Without it, total construction output would fall by 1.0% in 2018."

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.

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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

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Construction products manufacturers' sales have increased for tenth quarter running

The Construction Product Association’s State of Trade Survey for the third quarter of 2015 indicates construction product manufacturers’ sales increased for a tenth consecutive quarter.

Although the news is not all positive as companies reported that growth was held back by weakness in exports, but manufacturers still continue to be optimistic over prospects for the next 12 months.

Key points include: 

• A balance of 27% of heavyside firms and 67% of lightside firms reported that sales rose during the third quarter of 2015, compared to a year earlier
• Exports decreased for 18% of heavyside firms and rose for 14% of lightside firms
• 64% of heavy side product manufacturers and 79% of light side product manufacturers reported that they anticipate a rise in total sales over the coming year
• 27% of heavy side firms and 36% of lightside firms anticipate a rise in exports over the next year
• 40% of heavyside firms and 33% of lightside firms reported operating at over 90% capacity over the last 12 months
• 77% of heavy side firms and 33% of lightside firms increased investment in plant and equipment in Q3
• 53% of heavyside firms and 33% of lightside firms anticipate increasing employment over the next 12 months

Rebecca Larkin, CPA Economist, said:  “We have now seen ten quarters of sustained growth reported by construction product manufacturers, led by demand from the private housing, industrial and infrastructure sectors.  

“On the downside, compared to a year earlier, 27% of heavyside firms and 67% of lightside firms reported a rise in sales in Q3.  These balances were lower than those reported in Q2 and the lowest for the heavy side firms since 2013 Q2.  This decline largely reflects a decrease in export sales experienced by heavy side manufacturers as Sterling has continued to appreciate against the Euro throughout late 2015; however, the fact that heavy side product sales occur at the beginning of the building process may also foretell a slowdown in domestic construction activity.

“Despite this, product manufacturers retain a positive outlook for the next 12 months.  Most survey respondents – 64% of heavy ide manufacturers and 79% of those on the lightside – anticipate that product sales will increase over the next year, with expectations of renewed growth in international sales combining with rising demand from the domestic market.

“As firms increase production, a growing proportion of manufacturers reported operating at 90% capacity or above in Q3.  In response, manufacturers reported increased investment in plant and equipment, as well as their labour force.  A further increase in investment and hiring intentions for the next 12 months signals widespread confidence over the longer-term outlook.” 

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What factors are underpinning investment in the Construction Products Industry?

A new study by the Construction Products Association has been published to help understand the economic, political and regulatory landscape facing the industry. 

The key findings in this report suggest how industry and government can work better together to develop policies that give greater certainty and confidence to industry to encourage investment, innovation and growth.


You can download the report here.


Summary of the key findings include:

• Effective regulations are clearly defined, target-driven and not prescriptive.
• Industry needs policy and regulation that is simple with minimal administrative burden.
• Policy works best when government consults industry early and regularly to identify problems, review measures, provide solutions and evaluate results.
• Government can create greater certainty for industry by providing a roadmap with a long term plan – not just over five-year parliamentary cycles – and clear goals which allow time for industry to prepare. 
• Once the roadmap is implemented, unplanned changes should be avoided.  Delivery according to the original plan is key.  Consistency of policy helps industry to invest.
• Cross-party consensus should be sought in advance for policies which are key drivers in major markets (e.g., infrastructure and housing), to prevent changes occurring due to party politics.

Industry also needs to demonstrate leadership and play its part in helping develop effective policy and regulation. We can do this by working together to establish a consensus and:

• Speaking as a supply chain with a consistent voice to government.
• Providing government with high-level, outcome-focussed, strategic input which avoids commercial differences.
• Supporting well-considered, effective regulations with credible, practical solutions that are fact and evidence-based.

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