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[Nov 2006]
Recovery Marred by High Energy Prices, Says CPA
UK construction output continued to recover during the third quarter of 2006, according to the latest joint Trade Survey Report from the Construction Products Association (CPA) and the Construction Confederation, but despite a recent reduction in the spot price of energy, product manufacturers and contractors are still experiencing high energy prices which are reducing margins and pushing up tender prices.
The rise in output has been driven by higher commercial and industrial sector output combined with an increase in civil engineering work. Disappointingly, however, the earlier recovery in Government funded projects - such as new public housing and non-residential work and non-housing repair and maintenance work - appears to have petered out, says the CPA.
Construction product manufacturers have enjoyed an overall rise in sales. Heavy side firms in particular report firm sales, benefiting from the increase in civil engineering work as well as the upturn in industrial and commercial activity. Light side firms have also seen an overall increase in sales volumes, partly due to a strengthening in export sales. Looking ahead, manufacturers are relatively cautious about fourth quarter prospects but anticipate broadly based if subdued growth over the coming 12 months.
Speaking about the latest report, Allan Wilén, Economics Director for the Construction Products Association, said: "The construction continued to grow during the third quarter thanks to higher commercial and industrial sector output and a strengthening in civil engineering work. Strength in these areas helped offset a disappointing performance in Government funded areas that has heightened concerns that increasingly cash-strapped public sector clients are deferring planned projects. Unfortunately higher fuel and energy prices are exerting increased pressures upon industry costs. The Association estimates that higher energy costs are set to add £1.6 billion to product prices. Building contractors are now reporting that higher materials’ prices are increasing their cost base and pushing up tender prices".
Stephen Ratcliffe, Chief Executive of the Construction Confederation, added: "The continued growth of the sector, and particularly the rise in civil engineering work, is very welcome. However, it does look as though government spending has lost momentum and local authorities, schools and health trusts are tightening their belts and deferring maintenance work. Not only are these perceived savings on repair and maintenance work a false economy, the importance of sustained public sector investment cannot be over-stated.
"It is key to the delivery of the government’s public sector services programme that the planned investment in infrastructure is not blown off course. Our industry needs continuity, consistency and the security of long-term planned investment to maintain improvements in the training and development of its people as well as the improvements in the quality of life for the nation as a whole."
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ENDS