Builders bullish despite rising costs

Small construction firms enjoyed rising workloads in the first quarter of 2017, with the East of England receiving more workload enquiries than any other part of the country, according to the Federation of Master Builders (FMB).

Despite growing concerns over the cost of labour and materials, the key results from the FMB’s State of Trade Survey for Q1 2017, the largest quarterly assessment of the UK-wide SME construction sector, presented a set of largely positive figures, including:

  • UK construction SME workloads increased more significantly than at any time since Q2 2016 ie the quarter immediately prior to last June’s EU referendum;
    •   One in two construction SMEs predict rising workloads in the coming months, with just 5% predicting a decrease in activity;
    •   85% of builders believe that material prices will rise in the next three months;
    •   58% of firms are struggling to hire carpenters, a post financial crisis high.

Brian Berry, chief executive of the FMB, said: “The first three months of 2017 proved to be very positive for construction SMEs, which reported strong growth, underpinned by continuing resilience in the home improvement sector. Workloads rose in every part of the UK, with particularly positive results in the devolved nations. Given the concerns that wider consumer confidence might be weakening, it’s encouraging that smaller construction firms aren’t sensing any drop-off in demand for their services. Indeed, despite Article 50 being triggered and the growing likelihood of a hard Brexit, these latest results demonstrate that builders are increasingly confident about the immediate future, with one in two forecasting higher workloads during the next quarter.”

Berry continued: “The survey covers the period before the announcement of a snap General Election, which may well cool consumer demand in the coming months. The results are also tempered by a clear rise in output costs for construction companies. Material prices and wages rose markedly in the first three months of this year, with larger numbers of construction SMEs believing that all three will rise further during the next quarter. Indeed, although only 20% of construction products and materials used in the UK are imported, the depreciation of sterling since the referendum last June has seen material prices shoot up – with 85% of builders predicting further rises – this pressure on margins looks set to continue. Such cost inflation presents clear challenges to the profitability of smaller building firms and in many cases, builders will be forced to pass these price increases onto their customers.”

Berry concluded: “The combined effects of rising material costs and the ever-worsening construction skills crisis will therefore be reason enough for SME construction firms to be cautious in their optimism. If growth in real household income remains flat, and if consumer confidence is shaken by the impending snap General Election and the triggering of Article 50, there are plenty of potential pitfalls for builders to navigate. Nevertheless, as of yet, the much anticipated ‘Brexit effect’ has yet to hit what is considered to be the bellwether sector of consumer confidence and wider economic health.”

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