The UK construction industry continues to go from strength to strength with construction output increasing again during the second quarter of 2007, according to the latest joint Trade Survey Report from the Construction Products Association and the Construction Confederation.
Overall, there has been a continued acceleration of industry growth during 2007. The rise in activity has boosted construction products sales volumes, with heavy side firms in particular reporting a marked turnaround in their fortunes. Encouragingly, despite the rise in output, concerns over capacity constraints appear to be easing, while contractors report fewer difficulties in recruiting skilled labour.
Building contractors report a marked rise in industry activity during the second quarter, both compared to the first quarter and 2006. Strong activity in the commercial and public new housing sectors is again the principal driver of industry growth, with larger building firms the main beneficiaries of the increase in workload.
Commenting on the survey, Máren Baldauf, Economist at the Construction Products Association, said: “The increase in construction product sales during the second quarter was again driven by light side manufacturers, with 94% of firms reporting higher sales volumes compared to this time last year. Half of light side manufacturers and a third of heavy side manufacturers reported an increase in sales of more than 5% in the last year. However, construction product manufacturers continue to face a widespread rise in unit costs – mainly driven by a fuel & energy costs – as well as higher raw material prices. These cost pressures have further squeezed manufacturers’ margins and continue to filter through to building contractors as higher material costs”.
Stephen Ratcliffe, Chief Executive of the Construction Confederation, said: “Two-fifths of contracting firms report that output was up on a year earlier. Major contractors are among those who report a marked upturn in housing repair & maintenance work, indicating that councils and housing associations are pressing on with improvement programmes. Non-residential repair & maintenance work has also improved, suggesting a pick-up in expenditure by local authorities, schools and health trust for maintenance work. Surveyed civil engineering contractors report a continuing strong upwards trend in their workload, with current industry mainly driven by a welcome pick-up in water and sewerage works”.
Looking ahead, industry optimism is strong despite expectations of more modest construction growth next year. Five interest rate hikes are anticipated to slow consumer driven construction sectors, such as private new housing and repair & maintenance activity, as well as increasing caution among real estate investors. Against this background, contractors report that order books and enquiries for both housing and non-housing repair & maintenance activity slipped back during second quarter, while enquiries for private new housing works stagnated.
However, the construction products industry is overwhelmingly positive about output growth during the third quarter and the year ahead. In particular, heavy side firms are expecting a marked rise in sales volumes in response to an anticipated upturn in infrastructure activity. Building contractors are also positive, with the majority of firms expecting activity to increase over the coming year.