UK construction products slow

The construction product manufacturing industry in the UK is expected to slow this year, the State of Trade Survey for the fourth quarter of 2017 by the UK’s Construction Products Association (CPA) has forecast.

The CPA said the survey results for the £56.5 billion (€63.92 billion) sector showed activity was expected to weaken this year as inflation continued to rise, economic growth slowed, and the UK’s post-Brexit deal still remained unclear.

It said it was likely the first half of 2017 had been a peak for the industry, with the survey reporting early signs of activity slowing in the final three months of 2017. It added that construction product manufacturers were envisaging a broader softening in market conditions during 2018.

The survey results showed that a balance of 6% of heavy side manufacturers – such as steel, bricks, timber and concrete – reported a decrease in product sales in the fourth quarter, compared to 10% reporting a rise in the third quarter. This was the first negative balance since the first quarter of 2013.

In contrast, sales on the light side – which includes non-structural and finishing products such as insulation, boilers, glass and lighting – were still reported to be higher by half of manufacturing firms.

While a modest pickup in sales is expected in the first quarter of 2018, the survey showed a weakness in sales expectations extending across the next 12 months, for both heavy side and light side firms. No heavy side firms, and only 10% of those on the light side, expected an increase in product sales during 2018.

Rebecca Larkin, CPA senior economist, said, “The survey echoes other industry data that has shown the prolonged period of growth in construction activity since 2013 started to lose pace in the closing months of 2017.

“Of note are the signals of a leaner 2018 with heavy side expectations for sales growth at their lowest in five years, reflecting a backdrop of a slower economy, Brexit uncertainty and falling new orders in key sectors such as commercial offices.”

She said that as well as weaker market conditions, it appeared that a further rise in costs would strengthen the headwinds facing industry.

“In the fourth quarter,” she said, “87% of heavy side firms and 91% of light side firms reported a rise in raw materials costs, while on the energy-intensive heavy side, fuel and energy costs were reported higher for 93% of firms.

“This illustrates the lagged pass-through of the 2016 Sterling depreciation and rising global commodity prices into input cost inflation that is still to filter down the construction supply chain.”

She added, “Three-quarters of product manufacturers expect inflationary pressures to linger into 2018.”

The survey found that on an annual basis, sales were found to have risen for 13% of heavy side firms and half of firms on the light side.

No heavy side manufacturers forecast a rise in sales in the next year, decreasing from a balance of +28% in the previous quarter. On the light side, 10% of firms expected an increase in product sales in the next year, compared to a balance of 33% in the third quarter.

Annual cost increases were reported by 87% of manufacturers on the heavy side and 80% on the light side. Raw materials costs rose according to 87% of heavy side manufacturers and 91% of those on the light side.

And 73% of heavy side manufacturers and 80% of light side manufacturers expected a rise in costs over the next year.