Rising material costs and skills crisis expected to hit construction industry growth, says CPA

Construction sector growth is being hampered by the rising cost of raw materials and a skills crisis which has seen the demand for carpenters and plasterers reach a nine-year high, the latest industry survey reveals.

While an increase in sales, output and workloads were all reported during the final quarter of 2016, firms across the industry are bracing themselves for further cost pressures after reporting an increase in material prices, says the Construction Products Association.

The Trade Survey Q4 showed that overall costs increased for 88 per cent of civil engineering contractors, whilst 75 per cent of main contractors, 78 per cent of heavy side manufacturers and 88 per cent of light side manufacturers also reported a rise in raw materials costs.

The latest statistics also highlighted the skills shortage affecting key on-site trades with 71 per cent of main contractors reporting shortages of carpenters, 67 per cent cent struggling to hire plasterers and 40 per cent unable to recruit bricklayers.

The figures found 38 per cent of main building contractors, on balance, reported that construction output rose in the fourth quarter of 2016 compared with the same period the previous year, specialist contractors (14 per cent) and civil engineers (11 per cent) also reported increases.

Rebecca Larkin, senior economist at the CPA, said: “The construction industry closed 2016 on a strong note, with activity improving for firms throughout the supply chain. However, order books and enquiries were lower for contractors and signal a weaker outlook for 2017.

“Cost pressures continued to rise, particularly for imported raw materials, and compound the risks that activity will be unable to grow at current rates over the next 12 months. The construction products manufacturing industry is responsible for directly employing 280,000 people and whilst government has a role to play in providing certainty for projects, industry will need to find ways to navigate rising costs.”

Main contractors reported a decrease in orders in private housing, public housing, private industrial and private commercial.

Richard Beresford, chief executive of the National Federation of Builders (NFB) said: “The decrease in both public and private housing is a call to the Government to be bold in its housing aspirations. When Theresa May came to office, she promised to deliver an economy that works for everyone.

"If we cannot provide people with the most basic requirement such as a roof over their head, then the Housing White Paper will have failed.”

Brian Berry, chief executive of the Federation of Master Builders (FMB) said: “Rising material prices and growing skills shortages dampened growth among construction SMEs in the final three months of last year.

And with the forward-looking indicators suggesting the outlook for building activity during 2017 has worsened, Berry says: "The optimism that we saw from small construction firms during most of 2016 has now dropped off because of growing concerns about rising costs.

"The pledge from the Government that it will focus on finding ways to boost smaller scale house builders is therefore timely as it’s an area that is ripe for growth and could help counteract the risk of stagnation within the SME part of the construction industry.”

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