CPA: Construction industry remains resilient in face of Brexit

The construction industry grew for a fourteenth consecutive quarter in the third quarter of 2016 according to the latest Construction Trade Survey from the Construction Product Association (CPA).

However, rising costs resulting from inflationary pressures caused by rising wages and imported raw materials costs represent a risk to future growth.

Companies across all sectors of the construction industry including building contractors, SMEs, specialist contractors, civil engineers and product manufacturers noted a rise in activity.

However, performance was mixed throughout the supply chain.

Product manufacturers said that sales levels improved compared to last year, with 68% of heavy side companies and 60% of light side companies reporting a rise.

Output increased for one-third of main contractors in the third quarter, increasing from a zero balance in the second quarter of 2016.

33% of main building contractors reported that construction output rose in the third quarter of 2016 in comparison to the same period in 2015.

In comparison to the Q2, 18% of SMEs reported an increase in workloads in the third quarter. However, only 6% of SMEs and no specialist contractors cited an increase in enquiries in the third quarter.

Main contractors’ output was driven by orders in private housing but noted a decrease in all other sectors

For civil engineers the picture was one of virtual stagnation with only 1% reporting an increase in workloads during the third quarter.

In terms of new orders, 3% of civil engineering companies noted a rise in new orders.

The construction supply chain has been placed under pressure, raising the price of imported raw material, due to the price of imported raw materials increasing due to the 15.6% year-on-year depreciation in the Sterling/Euro exchange rate during the third quarter.

This was felt most keenly amongst product manufacturers and main contractors.

Total costs increased for 59% of civil engineers contractors, whilst 66% of main contractors said the cost of raw materials increased in the third quarter compared with Q2.

The skills shortage again caused problems for the industry, with over half (54%) of main contractors reported difficulties recruiting bricklayers, 47% for carpenters and 43% for plasterers in Q3.

Rebecca Larkin, Senior Economist at the CPA, commented: “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.”

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