Written by Colin Sanders
Posted on 14/03/2017

A mixed outlook for the construction sector

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Improving sentiment supported by stats

The construction industry is continuing to show signs of robust activity, despite Brexit concerns on the horizon. Figures from the Office for National Statistics (ONS) showed construction output rose by 1.8 per cent in December – significantly higher than the 0.4 per cent growth expectation set in November. Combined with better than expected activity in manufacturing, this increase fuelled a six-year high in UK industrial production in December.

In Scotland, construction firms are ‘more optimistic’ about the year ahead compared to sentiment last autumn, according to a recent survey by the Royal Institution of Chartered Surveyors (RICS). Following a drop in expectations after the Brexit vote, growth has now been forecast across workloads, employment and profit during 2017.

Indeed, expectations of workload growth rose significantly in the final quarter of last year, and one-fifth of RICS survey participants were anticipating a rise in employment this year. In Scotland, the private industrial sector drove the majority of growth but was aided by growth in private commercial and private housing during the last three months of 2016. Public non-housing work, however, declined during the same period.

In Ireland, employment in the construction industry hit a 13-year high in January, according to the Ulster Bank construction purchasing managers’ index. This was fuelled by activity in the housing sector, although commercial projects continued to expand too. The rapid rise in employment is a direct response to greater workloads. However, the rate of cost inflation also peaked at its fastest level since February 2007, with the Brexit vote raising oil prices and materials costs from UK suppliers. Overall, however, the survey found that sentiment remains positive in Ireland, with almost 60 per cent of respondents forecasting an expansion in growth during 2017.

UK skills shortage concerns

Despite positive performance in the construction sector in the UK and Ireland, there are rising concerns in the UK about a potential skills shortage hampering growth. The likely lack of quantity surveyors is causing particular unease.   

Net migration has fallen by 49,000 to 273,000 in the year to September, and construction managers are reporting difficulty recruiting vital European workers following the Brexit vote.

Construction manager Gary Clarke told Sky News that he is no longer receiving applications from eastern Europeans – something that’s causing him concern. “We simply don't have the amount of skilled labour to run large projects without eastern European help,” he said. “And they're very skilled and excellent hard workers.”

Without this important part of the construction workforce, the UK may not be in a position to capitalise on growth opportunities.

A mixed picture

The construction industry looks set to encounter both opportunities and challenges during the foreseeable future. Simon Rubinsohn, RICS, Chief Economist, told the BBC: “feedback regarding the outlook over the next 12 months is now rosier than it was back in the autumn, with more building anticipated as 2017 unfolds.

“That said, there remains some unease about access to skilled labour in the emerging new world and financial constraints still remain a major challenge for many businesses.

“And significantly, we are being told that a shortage of quantity surveyors is impacting on the development process at the present time.”

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