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Shortages May Stifle Growth

Special report by Glenigan emphasises that recovery in UK construction may be damaged by inability to meet demand for materials

 

The report acknowledges that the latest Royal Institution of Chartered Surveyors (RICS) UK Construction Market Survey (Q2 2014) has highlighted the current ‘challenges’ faced by the industry as UK economic prospects continue to improve.

Materials shortages were cited as the ‘greatest factor limiting building activity, overtaking financial constraints’ which have, until now, consistently been highlighted as the largest issue facing construction. These factors have been converging over

the last three quarters as investor confidence has grown and pressure on capacity has intensified.

The quick turnaround in the fortunes of the UK building sector, has been a major factor in the problems with supply. As recently as Q3 2013 insufficient demand was still being cited as a greater hindrance than materials shortages but in recent times, reports such as Markit/CIPS Construction PMI, have consistently reported rising delivery times for materials, particularly bricks and blocks given the initial surge in house building output.

Glenigan notes that the latest Construction Products Association (CPA) State of Trade Survey, covering Q2 2014, found that 100% of both heavy and light side manufacturers increased their sales over the last 12 months, with 90% of heavy side respondents saying sales had risen by more than 5%.

As Glenigan reports: ‘Indeed, it seems it was the sudden pace of the upturn that caught out contractors and suppliers. And it appears that haulage constraints are contributing at least in part to lengthening delivery times; hardly surprising when hauliers have

been hanging on through five years of economic downturn.’

The government does not seem quite as worried with national statistics compiled by the Department for Business, Innovation and Skills (BIS) suggesting that after the ‘initial shock’ in the second quarter of last year, supply and demand has returned to a rough balance,.

Glenigan appears to believe that the overall picture should be a stable one. ‘However the outlook, while remaining extremely positive, looks increasingly stable. Having shot up to around 6%, the annual rate of growth in the Office for National Statistics (ONS) figures has remained relatively steady, dropping to 4.8% recently due to an unexpectedly weak second quarter.’

Similarly, the value of new projects starting on site has continued to rise by an average of 13% over the first half of the year, although this is well below the 20% and 28% rises seen in the second half of last year. Glenigan believes that the sector ‘may see a mild year on year drop in project starts over the three months to September 2014’.

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