The construction industry has experienced a seventh consecutive quarter of growth despite significant reductions in the workload levels and new enquiries, according to the latest State of Trade survey from the Construction Products Association (CPA).
Firms across the industry – from large contractors down to SMEs and specialists – all reported positive performance in workloads, output or sales in the final quarter of 2014, although these balances were lower than the previous quarter.
The number of contractors reporting a rise in output dropped from 60% in Q3 2014 to 44% in the following three-month period. Similarly, only 17% of SMEs, on balance, reported rising workloads in Q4, down from 35% in Q3, while these smaller firms also saw an increase in new enquiries drop from 35% to just 2% in the final quarter of 2014.
A similar drop in new enquiries was also seen amongst specialist contractors, with the number of firms reporting a rise in new enquiries falling from 47% to 15%.
Despite these drops in activity, output remained positive due predominantly to the strength of the house-building sector, in which 53% of firms, on balance, reported a rise in activity. Continued growth was also fuelled by the commercial and infrastructure sectors.
However, large contractors reported slower growth in their order books for public housing and all categories of repair and maintenance, which the CPA says is most likely a result of Government changes to the Energy Company Obligation (ECO).
The prolonged period of increasing activity has also had the effect of raising costs across the construction industry. The number of firms reporting an increase in labour costs reached 57%, while 68% of firms reported that materials costs rose in Q4 2014 compared with the previous quarter. These higher costs are offsetting rising tender prices, which have grown for the last six quarters.
It is the higher labour and material costs that are causing the most concern within the construction industry. Richard Beresford, chief executive of the National Federation of Builders (NFB), said:
“While the industry is reporting broad-based growth and a strong pipeline of work, it is unable to capitalise on that. The rising costs associated with a shortage of skilled labour and for tenders are eliminating the profit advantage that increased workloads bring. With changes to procurement rules imminent, now is the time to see how we can remove unnecessary cost from the tendering process.”
Stephen Ratcliffe, director of the UK Contractors Group (UKCG), said:
“Cost pressures continue to be a worry largely reflecting skills shortages. That is why UKCG members are focussing their activities on attracting new people into construction.”
Looking forward to the rest of 2015, the CPA says contractors expect continued strength in private housing and commercial this year, boosted by public non-housing as a stream of work on the Priority School Building Programme gets underway. Outside of these sectors, weakened order books in Q4 suggest a moderation in growth in 2015, particularly among SMEs.
To read the CPA’s Construction Trade Survey for Q4 2014 in full, click here
