Contractors facing the squeeze as costs rise

The construction industry has enjoyed a fourth consecutive quarter of growth for the first time in six years, but firms are continuing to face the squeeze as material and labour costs rise, the latest Construction Products Association (CPA) trade survey has found.

The CPA survey, published today, shows that construction activity rose in Q1, with all parts of the industry reporting increased output, including building contractors, SMEs, specialist contractors, civil engineers and product manufacturers.

This is the first time in six years that the industry has enjoyed four consecutive quarters of growth in activity. 

The survey found that private housing was the key driver of activity, with 57% of contractors, on balance, reporting that private housing output rose during Q1 2014 compared with 20% in Q4 2013.

It also found 22% of building contractors, on balance, reported that commercial offices and retail output rose during Q1 2014 compared with 8% in Q4 2013. This is a significant rise from the 8% balance reported just three months ago. 

However, the survey also found that contractors were continuing to experience rises in costs, with:

• 77% on balance reporting costs rose in Q1 2014, compared with 63% in Q4 2013;
• 89% reporting rises in material costs in Q1, considerably higher than the 65% in Q4;
• and 50% of firms reported rises in labour costs, higher than the 34% of firms reporting labour cost rises in Q1 and 7% at the start of the 2013.

A further 47% of firms reported tender prices rose in Q1 2014 versus only 2% in Q4 2013.

Noble Francis, CPA economics director, said:  “Tender prices rose in Q1 but any boost from this is likely to occur when the resulting work hits the ground later this year. 

“Currently, the key concerns are rising costs and skills availability in specific sectors such as private new housing.”

The survey found that while there weren’t serious problems recruiting construction trades, 61% of firms, on balance, reported that it was difficult to obtain bricklayers during Q1 2014 compared with 41% in Q4 2013 and only 10% one year ago. 

A further 28% reported that they had difficulty recruiting carpenters in Q1, slightly lower than the 32% in Q4 but contrasting sharply with only 3% experiencing difficulties recruiting carpenters in just one year ago.

Stephen Ratcliffe, UK Contractors Group director, said:  “The encouraging news is that contractors have now reported four consecutive quarters of growth - with 16% of contractors reporting a rise in output during the first quarter. 

“However, looking beneath this headline reveals that growth continues to be led by private housing, although new work within wider construction showed positive signs.”