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CPA set to revise growth forecasts down following ONS Q3 data

3 November 2015

The Construction Products Association is set to downgrade its output growth forecast for 2015 and 2016, after preliminary ONS data suggested that output dropped by 2.2% in Q3 (July to September) compared to Q2 (April to June).

The decision to scale back on the upbeat forecasts made in August – when the CPA predicted that total construction output would increase by 4.9% in 2015, 4.2% in 2016 and 3.5% in 2017 –also follows the industry’s latest quarterly trade survey, which pointed to a much slower rate of output growth in Q3.

CPA economics director Dr Noble Francis told Construction Manager that “we are likely to revise down our estimate for 2015, because of the significant slowdown in Q3. And as we’ll be starting 2016 on a lower base, that will slightly lower too, but there’s still likely to be significant growth in 2015 and 2016. But obviously Q3 will have had an impact on the year.”

Last week’s ONS Q3 data is based on early responses to its monthly survey of contractors, and the CPA believes it is likely to be revised upwards later this month when more data is collated – particularly as the industry’s quarterly trade survey did show modest output growth in the quarter rather than a contraction.

"Our survey suggests we do have growth for Q3, but it has substantially slowed since Q1, and that's consistent across most areas [of activity]. But contractors and product manufacturers appear to be positive about prospects for Q4, and I would expect an acceleration in growth in Q4."

Dr Noble Francis, CPA

The survey is compiled by the CPA and brings together surveys from the Civil Engineering Contractors Association, the Federation of Master Builders, the National Federation of Builders and the CPA itself.

In this edition, a balance of only 4% of building contractors reported that construction output rose in the third quarter of 2015 compared with a year ago.

In Q1 and Q2, these balances were 50% and 17%, respectively, suggesting that activity is slowing down compared to high growth rates at the beginning of the year.

Francis said: “Our survey suggests we do have growth for Q3, but it has substantially slowed since Q1, and that’s consistent across most areas [of activity].

“But contractors and product manufacturers appear to be positive about prospects for Q4, and I would expect an acceleration in growth in Q4 in our survey.”

On skills shortages, the survey found that difficulties in recruiting skilled labour persist, with 63% of large contractors struggling to recruit bricklayers, as well as difficulties finding carpenters and plasterers.

Increased demand for skills, driven by the sustained period of growth, is also driving up construction wage bills: in Q3 labour costs were higher for three-quarters of large contractors, 44% of SMEs and 93% of product manufacturers.

Francis said: “Labour issues appear to be hindering industry activity, especially in house building, but also in the commercial sector. In commercial contracts that have already been placed, contractors will be going back to clients to renegotiate, but those projects are in the pipeline and will feed through.

“But in the medium term, you’d expect those issues to be overcome, with increased wage rates having to be paid. People in site trades who might have gone to [work in] other sectors, but higher wages will attract them back to their original trade.”

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