UK construction industry confidence is faltering against a backdrop of Brexit uncertainty, slack demand and rising input costs, according to new analysis from Turner & Townsend.
The report points to falling activity levels reflecting ongoing uncertainty over the UK’s exit from the EU, with data from the last quarter showing firms operating at only 85.8% of maximum capacity.
At the same time, says the report, a combination of softening tender prices on the back of low work pipelines and rising input costs continue to hit contractor profitability, which sits at less than half the level seen in Q1 2016 on Turner & Townsend’s index.
Just over half (51.7%) of survey respondents described tendering conditions in the last quarter as lukewarm. Analysis within the report shows that average materials input costs have risen 15.2% since Q1 2016, immediately before the Brexit referendum.
By comparison, analysis shows that contractor markets in Europe are booming. In May, Turner & Townsend’s International Construction Market Survey highlighted overheating market conditions in competing economic centres, as they seek to capitalise on Brexit concerns and attract international investment. The report found that tender prices in Amsterdam jumped 8.8% in 2018, 7% in Dublin and 6% in Warsaw.
In contrast, London recorded cost inflation of only 2.1% last year and the majority of UK regional markets ranked as lukewarm or cold.
Paul Connolly, UK managing director of cost management at Turner & Townsend, said: “Europe’s hot construction markets are experiencing conditions for contractors not seen in the UK since the boom period before the EU referendum, with new investment driving up tender prices and overall cost inflation. Comparatively, the outlook for UK contractors remains heavily subdued.
“In both cases, successful projects rely on understanding these conditions and engaging with the supply chain effectively to control risk. This means investing time and effort in the supply chain, appropriately packaging up scope and allocating risk at tender stage, and implementing robust controls and reporting once the contractor is appointed.”