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UK construction market sales
stable or only slightly down
According to a latest report (31 October 2023) by the UK Construction Leadership Council and the Construction Products Association, UK construction market sales stable or only slightly down.
In terms of product supply, little has changed since last month¡¯s report, with good availability across all products and regions, similar to pre-pandemic levels. While this appears to be positive news, it is largely driven by a continuing overall decline in construction activity and, therefore, product demand.
The picture varies across different sectors and regions of the country with demand in some remaining steady or declining only slightly, while others are experiencing more challenging conditions.
The private housebuilding sector is a key factor here. With interest rates likely to remain around current levels well into 2024, consumer confidence is proving volatile in the short term. Based on current sales, one major housebuilder is forecasting a 25% reduction in the number of houses built in the current trading year.
Meanwhile cancellations and delays in infrastructure projects have weakened demand for primary asphalts, ready mix, sand and gravel, with rates of decline comparable to those last seen in 2009.
Builders¡¯ merchant sales
Sales through builders¡¯ merchants, which had been better than expected in Q2, have now entered a downward trend and volumes are not expected to pick up until Q3/Q4 2024. This is leading to price softening across most product areas, the exceptions being products requiring high energy input to manufacture, and plumbing/HVAC and electrical.
In line with the slowing market, brick, block and roof tile manufacturers are balancing ¡®just-in-time¡¯ production levels and stock on the ground as storage is now proving challenging. They are, however, keeping a careful eye on indicators to rebuild stocks when required. Investing in flexible and agile capacity should help to counter any sudden surprise peaks in demand.
Members of the PAG panel highlighted growing problems of cash flow and liquidity. Everyone in the industry, from clients through contractors and the materials supply chain has a role in addressing this.
For example, hardening payment behaviours between Tier 1,2,3 and 4 contractors are only adding to market pressures, especially on smaller firms. Builders¡¯ merchants, who provide a financial bridge between manufacturers and contractors, are experiencing slower payments from customers and more bad debts.
PAG members are also aware that some companies in the sector have experienced credit rating downgrades which are impacting credit limits and putting additional pressure on those businesses and the wider industry. Subcontractors complain that they cannot get credit insurance because of the negative assessment of their credit worthiness.
With the rate of insolvencies and administrations in construction continuing to rise, an expanded access to insurance is an area that all construction sectors need to address.
Finally, the critical issue of labour and skills shortages across UK construction persists, with concerns compounded by fears that any prolonged downturn will result in further job losses and a smaller supply chain that is less capable of meeting demand when the market inevitably returns to growth.
The Construction Leadership Council will continue to lobby the government for support around this issue and will be watching the Autumn Statement in November with expectations of some progress.