Sales of UK construction products continued to increase in the second quarter of 2016, resulting in a thirteenth consecutive quarterly rise, according to the Construction Product Association’s (CPA) latest State of Trade Survey report.
However, the rise did little to quash growing pessimism in the sector according to the trade body, with many manufacturers voicing doubt about prospects for the coming year ahead, even though 75% of responses were received prior to the EU referendum on 23 June, when the UK exited the European Union.
The negative message was reinforced by forecaster Experian, which slashed its growth forecast for 2016 to 0.3%, down from a 2% growth forecast for the year just three months ago. Construction’s growth forecast for next year has also been downgraded, to 1.7% from Experian’s April forecast of 2.9%. Experian forecasts growth will be maintained at 1.7% in 2018.
But it warned these summer forecasts were set before the UK had voted for Brexit, working on the incorrect assumption that the UK would choose to remain. Thus the full and likely negative impact of the referendum result will not be factored into its forecasts until its next set are published in the autumn.
Explaining the downgrades, Experian said a global economic slowdown over the past few months had impacted prospects for the economy and construction “even without the impact of the referendum vote”.
Commenting on the likely impact of Brexit on construction’s prospects, Experian said “this is currently unquantifiable, but is almost certain to be negative”.
Rebecca Larkin, CPA senior economist, said: “Construction product manufacturers’ sales growth strengthened in the second quarter, suggesting that construction activity remained resilient against a backdrop of growing uncertainty in the run-up to the EU referendum at the end of the quarter.
“Compared to the first quarter of 2016, a balance of 52% of heavy-side firms reported a rise in sales in the second quarter.
“This was the highest balance in a year and increased from 31% in the first quarter. On the light side, 38% of firms reported a rise in quarterly sales in the second quarter, up from 13% in the first quarter.”
She added that, for heavy side manufacturers, sentiment was the lowest in three years and 13% of those firms anticipated a fall in sales in the third quarter. Among manufacturing firms on the light side, forward-looking sales expectations was the weakest since the financial crisis, with a downturn expected for the first time in six years.
She continued: “Sterling depreciated 8.4% against the euro in the second quarter compared to a year earlier, which may be one favourable side effect linked to the economic uncertainty pre- and post-referendum for product manufacturers that export to Europe.
“The majority (60%) of firms on both the heavy and light side anticipate an increase in overseas sales over the coming year.”
