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2016 was widely viewed as a positive period of time for the UK construction industry. London office construction reached a 20-year high, the housebuilding sector picked up more pace and more businesses were investing in their business premises with upgraded technology, more space and a stronger focus on design and aesthetic appeal.
So what lies ahead for 2017?
The latest monthly survey of construction purchasing managers by IHS Markit claims that contractors are demonstrating their confidence in the continued growth of the UK construction industry by bulk buying stock to get the best rates and avoid expected price rises later in the year.
The survey singled out house-building as the best performing sub-sector and suggested that this area will continue to lead the way into 2017 and beyond. Civil engineering projects also picked up towards the end of 2016 and are expected to see growth throughout this year. Commercial construction continued is also expected to increase at a steady rate.
Partly due to the impact of Brexit and the relative weakness of the pound, many contractors noticed the price rises in imported raw materials in the latter part of 2016. These price hikes were the highest in over 5 years but demand is also higher than it has been for over 5 years so price rises are to be expected regardless.
Contractors have also noticed an increase in supplier lead-times which is consistent with the findings of the IHS Markit survey which points to ‘the most marked deterioration in vendor performance since June 2015.’ This should be taken into account when planning projects as it is a trend set to continue through the current year, particularly with the emerging trend of some construction firms forward purchasing their materials and depleting stocks further.
Strong demand for construction skills resulted in sustained job creation throughout 2016 which is set to continue into 2017 and beyond but, once again, raises the issue of the skills gap in this country. Further training and investment is necessary to ensure we have the skills required to continue developing our construction industry in the medium and long term.
The Construction Index stated that new business volumes expanded at the strongest rate for 11 months in December 2016, showing a sustained recovery from the mid-2016 lull. The construction website cited rising client demand and a resilient economic backdrop as reasons for the upturn. In our opinion, the downturn in orders in mid-2016 was caused largely by the uncertainty of the EU referendum.
A Positive Outlook
Overall, UK construction companies reported an upbeat assessment for their growth prospects for 2017. 48% of the HIS Markit survey respondents anticipate continued growth in their business activity throughout 2017, while only 13% forecast a reduction.
Our Opinion
“Throughout 2016 and into 2017, we’ve seen a continued increased in confidence from companies who wish to invest in growing and developing their businesses. Some are looking to expand their premises or update their office interiors and technology while others are looking to take on additional space this year and branch into new areas.”
“While Brexit was undoubtedly a cause for concern for many business owners, the UK economy has continued to grow, particularly here in the South-East and we are looking forward to bringing many interesting projects to completion during the course of this year.” Nick Baster, Director Logic PM
