Workloads in the UK construction sector continued to grow solidly, thanks to a series of big infrastructure projects, but skills shortages, credit conditions and inflation are making it harder for firms to turn a profit.
That is the summary of the Royal Institution of Chartered Surveyors’ UK Construction & Infrastructure Monitor Q2 2022.
A net balance of +30% of respondents reported a rise in workloads in the second quarter of 2022 (Q2), down slightly from +34% in Q1. Workloads are being driven mainly by infrastructure projects, as 43% more respondents reported a rise in activity in this area than a fall. But private sector workloads also remain firmly positive, albeit slightly less so than in the previous quarter. The net balance for private residential workloads came in at +29%, down from +38%, while the private commercial net balance was +25% down from +28% previously.
Despite the relative strength in current workloads, the impact of labour and material shortages, and the resulting rising costs, is being felt. A scarcity of materials was highlighted by 83% of survey contributors; 77% said that they were experiencing labour shortages and 60% had problems recruiting quantity surveyors, which is the highest share for this since Q4 2018.
Financial constraints are seen as a growing issue too, according to a net balance of +54% of respondents. And with interest rates rising, credit conditions are anticipated by a growing proportion of respondents to deteriorate further over the next quarter and the next year.
Whilst 12-month expectations for workloads remain positive, albeit less so than before (+27% of respondents compared to +40% previously), profit margins are projected by respondents to decline as costs continue to rise. The profit margin outlook indicator slipped back into negative territory with a reading of -14% in Q2.
RICS chief economist, Simon Rubinsohn said: “Feedback from RICS members suggests construction activity remains firm and that it is likely to continue to grow solidly over the coming year despite broader macro challenges, partly as a result of ongoing work on a series of big infrastructure projects. However, increasing concerns are beginning to be expressed about the deterioration in credit conditions particularly for smaller businesses in the sector which is also now visible in the worsening insolvency data. Despite this, the sector continues to grapple with challenges around recruitment with over three-quarters of respondent to the survey indicating they were facing labour shortages. And unsurprisingly, it is in the area of skilled trades where this shortfall is most intense.”
RICS senior public affairs officer Euan Ryan added: “Construction is critical to the success of the UK economy. The government must set out a vision for long-term investment in upgrading UK infrastructure, play a leadership role in enabling the decarbonisation of the sector, and work with industry to mitigate the triple threat of rising costs, materials shortages, and skills shortages.”