CPA revises growth prediction and warns of ‘existential risk’ to sector

Concerns over inflation are set to dog the construction industry in the long term, the Construction Products Association (CPA) has warned.

Price pressures around labour shortages, rising material costs, bigger energy bills and the Russian invasion of Ukraine will all threaten the sector’s growth, particularly in the final months of this year, according to the industry body’s latest projections.

A strong pipeline of work and persistent demand should keep the sector buoyant until at least the third quarter, with growth of 2.8 per cent predicted for 2022. This compares to the 4.3 per cent growth that was envisaged by the CPA three months ago.

Rising energy prices and product shortages due to the war in Ukraine will hit imported products, including steel and aluminium, and locally sourced products such as cement and bricks, the report says.

CPA economics director Noble Francis said inflation would have an “increasingly depressing impact” on the industry in the long term. “The continuation, or potential escalation, of conflict in Europe presents an existential risk.

“Specialist sub-contractors are feeling the effects first, particularly those working to fixed-price contracts,” he added. “For future projects, contractors will be forced to reprice, add fluctuation clauses and introduce risk-sharing arrangements to deal with the uncertainty over potential cost inflation.”

However, some parts of the sector are set to see substantial growth, particularly the industrial side, whose output is expected to grow by 9.8 per cent this year, followed by growth of 9.3 per cent in 2023.

Demand for warehouses has skyrocketed over the past year, as online shopping has soared in popularity. Recent data shows the value of the sector jumped by nearly 150 per cent in 2021, which Francis attributed to a long-term shift in online shopping and a more short-term shift caused by the pandemic.

Growth in the private-housing construction sector has been scaled back, however, to 1 per cent in 2022 and 2023. Previously, the CPA had forecast growth of 3 per cent for both 2022 and 2023. The CPA report says there will be “questions over consumer confidence” in the long term, but resilient demand should continue to hold in the coming months.

Repair and maintenance of private housing are being held up by high demand, but the sector is most exposed to price inflation, falls in consumer confidence and pressure on household income, the report says. That should see output fall by 3 per cent this year and by 4 per cent in 2023.

Infrastructure is set to continue growing, to the tune of 8.8 per cent this year and 4.6 per cent in 2023, thanks to a combination of ongoing work at HS2 and Hinkley Point C, and the recent publication of five-year spending plans.

Small builders are looking at the situation with increasing alarm. A poll published last week by the Federation of Master Builders (FMB) revealed that four in five raised their prices in recent months and expect to put them up again in the second quarter.

Project starts have been stilted by concerns over product availability and prices, and were down by about a quarter in the first three months of 2022, in comparison to last year. National Federation of Builders head of housing and planning policy Rico Wojtulewicz said the conditions meant firms had to become “more strategic” about the projects they pick up.

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