The Construction Products Association (CPA) have recently revised downward their forecast for this year and next. They expect construction output to fall by 7% this year, the forecast was 6.4% contraction forecast at the start of May, with only a modest increase in 2024 of 0.7%. The forecast is based on the Bank of England interest rate peaking at 5.75% in 2023 Q4 but, as material supply stabilises and economic data is released, interest rates will have an impact on forecasts.
By far the biggest fall in construction output is in private housing which is forecast to fall by 19% this year with only a modest 2% increase in 2024. The slow down is partially blamed on high interest rates which is subduing demand for new homes. Despite the downturn in the UK construction forecast, CAB members remain fairly busy and optimistic despite uncertain times ahead.
Client decision-making in the current financial climate to enter into new construction contracts has slowed, whilst there is a lot of construction currently in the pipeline, there is doubt about how quickly this will come through into starts on site.
Whilst on net balance 45% of members have seen Historic Sales Volumes increase, this is in contrast to the wider construction industry which reported a -47% reduction in sales over the same period. Historic Sales Volumes – YTD shows continuous volumes increase, the wider construction industry values have dipped considerably compared to Q1 2023 results of just -7% on net balance of respondents.
Following a good start to the year where CAB members forecast on net balance an increase in sales of 77% in the first quarter, this has softened a little to 55% on net balance. This is in contrast to the wider construction industry, whilst positive in Q1 2023 dips to -21% on net balance in Q2 2023. The results clearly show that the slowing in the wider construction market brings down the forecasts of CAB members but still stays well ahead by 76% points compared to just 32% points a year ago. This large variation could suggest market volatility ahead.
Although material supply has recovered well since Covid times, it is the financial aspect of borrowing and the increasing cost of materials that is bringing about instability and could create financial uncertainty for many businesses in the latter part of the year.
Sales Volumes – Quarter-on-Quarter for CAB members show a healthy increase with only 9% of firms reporting a decrease of less than 5%. 54% indicated an increase in sales over Q1 2023 with 36% reporting over 5% increase.
Historically, as new build slows, refurbishment increases and, as can be seen in previous downturns, aluminium fenestration is quick to transfer into refurbishment from new build, as building owners turn to put a new face onto existing property. This work is quicker coming through the pipeline.
The trend on Historic and Expected Unit Costs has clearly softened over the last year across the construction industry. Aluminium prices have reduced by 15% since a high early in the year, however, hardware and other materials continue to have an impact.
CAB Members report that wages and salaries are now the major Cost Factor with 91% of businesses responding. Energy costs as a Cost Factor has softened to 64% of respondent from a year ago high of 100%. From a high of 78% of respondents in Q4 2022 reporting raw materials as a Cost Factor, in Q2 2023, no respondents saw raw materials as a Cost Factor.
Looking forward, CAB Members claim that the Likely Constrain on Activity Over the Next 12 Months remains demand with 82% of respondents claiming this as the major factor. This has remained steady over the last year. Labour availability is the second constant over the last year currently with 9% of respondents claiming this as constraint over the next 12 months.
CAB Members Capital Investment in plant & equipment and product improvement have always remained high with plant and equipment being the largest investment. In Q2 2023 the emphasis has now moved to product improvement as being the major Capital Investment. The challenge to meet higher thermal performance levels to meet future legislation is clearly a driving factor.
The full report placing CAB Members feedback against the wider construction products sector, produced by the CPA is a members only document. This together with other market data forms part of the support package for CAB Members. Should you wish to learn more about the use of aluminium, please contact CAB directly, or why not consider joining the Association and be recognised as being involved in supporting your Industry and helping to shape its future. More information on our website at c-a-b.org.uk
