SME builders bullish despite rising costs

Workloads up in Q1 but bricklayers, carpenters & plumbers in short supply, says FMB

Most of the UK’s small construction firms saw their workloads increase in the first three months of the year, but rising costs are a big concern.

The Federation of Master Builders’ latest assessment of the sector found SME workloads were rising at the fastest rate since before the Brexit vote last June, with half of firms expecting further boosts in the coming months (that was before the snap General Election was announced, mind).

Finding the right skilled labour seems to be the toughest challenge at the moment, with 60% of construction SMEs responding that they were struggling to hire bricklayers; 58% are having problems sourcing carpenters and joiners, and 45% are finding it difficult hiring plumbers.

85% of builders believe that material prices will rise in the next three months, said the report.

Brian Berry, Chief Executive of the FMB: “The first three months of 2017 proved to be very positive for construction SMEs, which reported strong growth, underpinned by continuing resilience in the home improvement sector. Workloads rose in every part of the UK, with particularly positive results in the devolved nations. Given the concerns that wider consumer confidence might be weakening, it’s encouraging that smaller construction firms aren’t sensing any drop-off in demand for their services. Indeed, despite Article 50 being triggered and the growing likelihood of a hard Brexit, these latest results demonstrate that builders are increasingly confident about the immediate future, with one in two forecasting higher workloads during the next quarter.

“The survey covers the period before the announcement of a snap General Election, which may well cool consumer demand in the coming months. The results are also tempered by a clear rise in output costs for construction companies. Material prices and wages rose markedly in the first three months of this year, with larger numbers of construction SMEs believing that all three will rise further during the next quarter. Indeed, although only 20% of construction products and materials used in the UK are imported, the depreciation of sterling since the referendum last June has seen material prices shoot up – with 85% of builders predicting further rises – this pressure on margins looks set to continue. Such cost inflation presents clear challenges to the profitability of smaller building firms and in many cases, builders will be forced to pass these price increases onto their customers.

“The combined effects of rising material costs and the ever-worsening construction skills crisis will therefore be reason enough for SME construction firms to be cautious in their optimism. If growth in real household income remains flat, and if consumer confidence is shaken by the impending snap General Election and the triggering of Article 50, there are plenty of potential pitfalls for builders to navigate. Nevertheless, as of yet, the much anticipated ‘Brexit effect’ has yet to hit what is considered to be the bellwether sector of consumer confidence and wider economic health.”