Posted on 26/04/2017 by Lee Hiskett
The latest report from the Federation of Master Builders (FMB) has shown that small construction firms have experienced rising workloads for the first quarter of 2017 despite concerns over Brexit, and possible rises in the costs of labour and materials.
The State of Trade Survey for Q1 2017 is the biggest UK wide assessment, produced quarterly, and revealed that:
SME workloads for the UK construction sector have increased more significantly than at any time since Q2 2016 just before the referendum on June 23rd.
50% of SME's believe workload demand will rise in the near future with just 5% thinking workloads will decrease.
85% of SME's believe that material costing will rise in the next quarter.
58% of SME's are experiencing a shortage of skilled carpenters.
The FMB Chief Exec Brian Berry indicated that for SME's in construction the first quarter for 2017 was very positive. Continued buoyancy in the home improvement market helped the strong growth for this period. Workloads in general have increased across the whole of the UK.
Berry goes on to say that while concerns over consumer confidence may be increasing, smaller firms are not seeing any reduction in demand for their services and even though Article 50 has been triggered and the possibility of a hard Brexit seems more likely, builders are feeling more and more optimistic about the immediate future with 50% of companies predicting higher workloads for the next quarter.
The general consensus, it seems, is that material costs and wages have risen for the first three months of the year. The results of the survey was just before the announcement of the snap General Election which may have the result in reducing consumer demand in the upcoming few months. Given this it's worth noting that only 20% of construction materials used in the UK have been imported, the depreciation in Sterling of 15% has applied pressure on margins but the recent snap General Election has boosted Sterling’s bounce back by 5% effectively reducing the depreciation to just 10% and climbing.
The pressure on margins may reduce if Sterling continues to make gains and recovers to its pre Brexit levels but until then 85% of builders feel further rises will be in order. Cost inflation will present hurdles to the profitability of smaller construction companies and may force them to pass these cost rises onto the end consumer/customer.
Whatever happens in the long term remains to be seen but in the short term we are likely to see a short spike in prices unless after the General Election we see further strengthening of Sterling which will, in turn, go towards reducing some of the costs for imported materials.