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Margins come into focus as recovery gains momentum

10 Nov 14 Construction is now growing at its most sustained level since before the 2008 crash, latest industry surveys confirm.

41% of building contractors reported difficulties recruiting bricklayers in Q3, compared with 47% in Q2
41% of building contractors reported difficulties recruiting bricklayers in Q3, compared with 47% in Q2

The thrid quarter Construction Trade Survey, published today, reports that construction activity rose in the third quarter of 2014 the sixth consecutive rise in activity. This is the sixth consecutive quarter of growth – a run not seen for six and a half years.

The survey encompasses six major industry trade associations, representing building contractors big and small, civil engineering contractors, specialists and product manufacturers.

Although private housing output slowed in Q3, this was offset by growth in all other sectors. Firms across construction, from SMEs to the largest contractors, reported increased output in the third quarter.

A net balance of 60% of contractors saw their activity rise.

There seems to be some easing of the widely-reported recruitment problems, with a decline in the number of firms reporting difficulties finding bricklayers and carpenters.

On the downside, margins are clearly coming under increasing pressure. Tender prices are rising but not as fast as costs.

Commenting on the survey, Dr Noble Francis, economics director at the Construction Products Association, said: “Private housing activity slowed in Q3 with 35% of firms, on balance, reporting that private housing output rose compared with 57% in Q1 and 41% in Q2. This slower growth in private housing, however, was offset by significant growth in other sectors. On balance, 43% of firms reported growth in private commercial, the largest construction sector, which covers offices and retail work. A further 41% of firms, on balance, reported work growing in the private industrial sector, which covers factories and warehouses construction.

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“Construction firms also reported rises in forward looking indicators such as orders and enquiries, which clearly indicate that activity will rise throughout 2015. A rise in Q3 order books in private housing was reported by 15% of contractors, on balance. A further 13% and 12% of firms reported rises, on balance, in orders books across private industrial and public non-housing (education and health) respectively.

“The only dark clouds in construction were seen around margins, which continued to be hit hard. Construction firms had to suffer rises in costs in Q3 once again and although tender prices also rose in Q3, the benefits of these tender price rises are only likely to be felt when the work from these contracts occurs in 2015.”

National Federation of Builders chief executive Richard Beresford added: “The industry is in recovery. The good news of across the board rises in reported output makes it tempting for us to take our eye off some of the industry’s structural issues. With more work around, we have a little breathing space, an opportunity to address access to finance, tender costs, skills and security of materials’ supply to ensure a more sustainable recovery.”

Key survey findings include:

  • 60% of building contractors, on balance, reported that construction output rose in the third quarter of 2014 compared with a year ago
  • Private housing output in Q3 rose according to 35% of building contractors, on balance
  • 43% of building contractors, on balance, reported that private commercial output rose in the third quarter of 2014 compared with a year ago
  • Private industrial output in Q3 rose according to 41% of building contractors, on balance
  • 68% of firms reported labour costs rose and 74% of firms reported that materials costs rose in Q3 compared with the previous quarter
  • 11% of building contractors, on balance, reported a fall in margins in Q3 compared with Q2
  • 41% of building contractors reported difficulties recruiting bricklayers in Q3 compared with 47% in Q2
  • 39% of building contractors reported difficulties recruiting carpenters in Q3 compared with 47% in Q2.

The six associations that contributed to the survey are:

  • Construction Products Association (CPA)
  • National Federation of Builders (NFB)
  • National Specialist Contractors Council (NSCC)
  • Civil Engineering Contractors Association (CECA)
  • UK Contractors Group (UKCG)
  • Federation of Master Builders (FMB).

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MPU
MPU

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