The latest Construction Products Association's (CPA) Construction Trade Survey reveals factors such as weather-related disruption and the collapse of Carillion saw 39% of main contractors report a fall in profit margins during Q1.
Despite activity continuing to increase for main contractors and SME builders, there was a smaller proportion of firms reporting a rise. In addition, civil engineering firms reported a second consecutive fall in workloads and heavy side product manufacturers' sales, a leading indicator of structural and groundworks, which declined for the first time in five years. Overall costs also increased for 84% of civil engineering contractors, whilst 87% of main contractors, 90% of heavy side manufacturers and 84% of light side manufacturers reported raw materials costs rose in Q1.
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However, more than one quarter of firms surveyed expected orders, enquiries and product sales for the year ahead to remain positive, although contractors reported that orders were concentrated in the housing and infrastructure sectors. Combined, these sectors account for over 35% of total construction output.
Rebecca Larkin, Senior Economist at the CPA, said: "The industry's run of growth was halted by a quarter that combined the liquidation of Carillion and the snow disruption in February and March.
"Encouragingly, order books throughout the supply chain suggest activity will pick up again throughout the year. This appears to be driven by just two sectors, housing and infrastructure, which are reliant on a ‘steady state' of government support. Private sector house building continues to benefit from Help to Buy, housing associations are commencing activity under affordable homes funding programmes and contract awards for major strategic infrastructure projects such as HS2 are lining up a pipeline of longer-term infrastructure activity."
CECA Chief Executive, Alasdair Reisner, said: "2018 has seen challenging market conditions in the UK's infrastructure sector, where the aftershocks of the Carillion liquidation continue to be felt. We believe there is more the Government can do to support the sector, by committing to projects outlined in the National Infrastructure Delivery Plan and continuing to develop this pipeline to secure economic growth.
"At the same time, our members are reporting that they are expecting orders to turn into activity, as schemes come forward to market in the coming year.
"While the first quarter of 2018 has proved a challenging period for many of our members, we believe that there is light at the end of the tunnel, and that industry will act as a platform for secure growth in the coming years."
(LM)
