How did the UK construction industry perform in Q4 2015?
As we enter the second month of 2016, a key construction market survey reports that, although growth has continued at a moderate pace across the industry, it is restricted by skills shortages, finance and delays in getting planning permission.
UK construction industry statistics in Q4 2015
The Royal Institute of Chartered Surveyors’ survey of Q4 performance in 2015 found sustained growth reported in the housing and commercial sectors with 42% of surveyors across the UK reporting their workloads to have increased in commercial and 40% in housing. However both of these responses were down on Q3, when 47% of respondents reported growth.
UK construction industry growth in Q4 2015
Workloads were seeing sustained healthy increases in Q4 within the infrastructure and private industrial sectors with 29% and 26% reporting growth, but increases in the public sector were minimal, raising some concerns for 2016. Challenges being faced by the industry which were tempering the figures in Q4 included labour shortages, planning delays and financial constraints, with over 60% of respondents citing issues with each of these factors.
Labour and skills shortages potentially represent the greatest concern going forward, as by the end of the year overall output had increased to just two percentage points below its pre-recession high, while the construction workforce is 5% smaller. A total of 66% of surveyors reported shortages in Q4, with quantity surveyors and bricklayers a particular concern, causing project delays and problems with planning projects.
UK construction industry rates of pay
The skills shortage also had the effect of driving a sharp increase of wages of 6% in the year to October 2015 and 61% of those surveyed saying wages rose further in Q4.
This wage growth was putting pressure on profit margins although margins are expected to rise over 2016 with a strong demand from projects in the pipeline and activity levels increasing across all UK regions. The big constraint for construction firms shown in the survey is that they are already working at 90% capacity, with the result that growth has been forecast to only be moderate over the next 12 months, downgraded from 3.8% to 3.6%. Project financing remains a challenge post-recession, with net lending to construction falling by £274m in the three months to November.
Export value of the UK construction industry
The State of Trade Survey from the Construction Products Association reflects this positive but qualified picture, reporting a slowdown in Q4 across the UK compounded by a fall in exports. However manufacturers are optimistic about both domestic and overseas prospects for 2016, with 43% of heavy side manufacturers and 42% of light side expecting a rise in total sales over the next 12 months. This was aided by welcome cost reductions over Q4 for manufacturers from reduced import costs for due to a stronger pound, plus the decline in oil prices, however wage bill increases were offsetting this somewhat.
UK construction forecast for 2016
We at Wavin also remain cautiously optimistic about 2016 and beyond, with sustained although moderate growth being seen across the sectors we operate in.
As shown in Barbour ABI’s January Economic & Construction Market Review, a slight reduction in output in 2015 has been accompanied by a boost in the value of construction projects awarded of 15.7% compared with 2014, driven by a shift to higher value projects such as the £1 billion Thames Tideway Tunnel.
With a total of £74.3 billion worth of contracts being awarded in 2015, there is increased, although measured, industry confidence going forward.