Rising Costs and Falling Pound Make for Mixed Results in Construction Q1

15th May 2017

Despite a healthy start to 2017 in the construction industry, according to SMEs, specialist contractors, materials manufacturers and civil engineering firms, and the Construction Products Association's positive estimates for an optimistic year, there has been weakness in the activity of industrial and commercial sectors which has resulted in lighter orders in Q1 compared to those of last year.

Main contractors blame rising costs, and the falling pound has done little to help. 84% of civil engineering contractors, 86% of main contractors report rising costs, and 93% of each heavy and light side manufacturing companies report a rise in the cost of raw materials.

Rising costs throughout the supply chain is not good for the state of current and future construction projects in any sector of the industry. With key figures being given such as 31% of main contractors saying that construction output fell in Q1 2017 compared to last year, and lower orders in all but private housing, yet 50% of specialist contractors reporting an increase in Q1 enquiries, we are clearly seeing a significantly mixed bag of results, which is difficult to accurately ascertain what the rest of the year might hold.

It seems that private sector housing could be the best of the bunch this year for growth, yet rising costs are creating concerns for main contractors, who are suffering the most.

Rebecca Larkin, senior economist at the Construction Products Association (CPA), whose Construction Trade Survey Q1 provided the figures and results we are looking at, 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.'

The concern for the industry as a whole, is that margins will continue to be squeezed as costs rise, particularly in the manufacturing sector, which will provide a 'knock-on' effect, filtering down through the chain. So far, this is resulting in a main contractor tender prices moving in what has been described as 'the wrong direction.'

It will be interesting to see how the results of Q2 compare.

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