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01 - The state of play

Respondents to Experian Business Strategies’ latest contractor survey were slightly less optimistic in July than they were in June. The activity index, which acts as an overall barometer for the industry, recorded a decline to 55, which shows that we are still in a period of healthy growth.

Insufficient demand and labour shortages were the two most common problems reported, although more than half of firms met their desired activity level during the month. The order and tender enquiry levels, which are the best indication of what’s to come, both suggest that the outlook is bright.

Across the industry’s three main sectors, residential, non-residential and civil engineering, residential’s performance improved, although respondents were more tentative about their future prospects than their counterparts in the other two categories. Residential’s orders, tender enquiries and employment indices all climbed.

The non-residential and civil engineering sectors recorded strong activity indices and respondents reported high levels of future interest.

Outside of the civil engineering sector employment prospects were relatively weak. At 52, both the residential and non-residential indices suggest any workforce expansion over the coming quarter will be marginal at best.

02 - Leading Construction Activity Indicator

According to Experian Business Strategies’ Leading Construction Activity Indicator, the industry is likely to maintain a good level of growth. With orders and tender enquiries standing at 71 and 61 respectively, further robust growth is forecast throughout the period.

03 - Material costs

With the industry growing strongly, and no slowdown in sight, it isn’t surprising that respondents report strong rises in materials costs. The civil engineering sector is enduring the steepest increases, with almost half of firms experiencing rises in excess of 5%.

Thirty-two per cent of residential and non-residential firms are encountering increases of more than 7.6%, although for most of these respondents, inflation is in the 2.6% to 5% range.

Material cost increases were last reported three months ago when about 76% of civil engineering respondents reported rises of more than 5%. This time, while the material cost inflation burden is significant, it is considerably less heavy for many. Although the effects of higher oil prices on material costs will be felt across the board, the impact on materials commonly used in residential and non-residential construction is likely to stem from the resulting step-change in energy prices and should thus be less immediate and severe.

04 - Regional perspective

Regional composite indicators for July show activity expanding in every region except north-west England, where the construction industry has been in decline for three consecutive months. The composite indicators incorporate regional activity, orders and tender enquiries from the past three months to provide a comparable indication of how each region’s construction industry is performing.

Seven regions saw their composite indicators rise in July. Most significant was Yorkshire and Humberside’s recovery, which continued strongly after faltering in spring. A nine-point increase pushed its index to 73, levering it into joint first place with Scotland. Rises were more modest elsewhere with the South-west’s indicator up by four points, the Eastern region by three points, and north-east England and Scotland both up two points. The South-east and Northern Ireland had a single point rise in their indicators.

Four regions saw their composite indicators fall in July. The West Midlands and the North-west’s indicators fell by two points each, whereas the East Midlands and Wales suffered only a one-point decline.

The UK contractors’ index incorporates responses from firms operating in more than one region during the month. This stood at 69 in July, which is unchanged from June.