Business booming as Scottish builders achieve strong first quarter

Home building stockWorkloads for small and medium-sized construction firms in Scotland rose faster than at any time since the 2007 financial crisis, a new survey has revealed.

The latest report from the Federation of Master Builders (FMB) shows that workloads for Scottish construction SMEs rose faster than at any time since the final quarter of 2007 with one in two SMEs predict rising workloads in the coming months.

Only 5% are predicting a decrease in activity.

The report shows a weighted net balance of 35% of small and medium-sized construction firms in Scotland were in the first quarter positive overall about recent and expected movements in workloads and levels of inquiries from customers.

This was an improvement of 25 percentage points on the weighted net balance recorded for the fourth quarter of last year. The FMB noted this was the greatest rise in this indicator seen in any nation or region of the UK in the first quarter.

The weighted net balance is calculated by subtracting the proportion of companies making negative responses from that declaring a positive picture, after weighting firms by size.

A weighted net balance of 26 per cent of small and medium-sized construction companies across the UK were positive about workloads and inquiry levels.

However, the FMB’s State of Trade Survey for Q1 2017, which is the largest quarterly assessment of the UK-wide SME construction sector, also highlighted concerns in the sector with 85% of builders suggesting that material prices will rise in the next three months while 58% of firms said they were struggling to hire carpenters, the highest reported level since the financial crisis.

Gordon Nelson, director of FMB Scotland, said: “Scottish construction SME workloads have now risen for five consecutive quarters and rather than tapering off in advance of Article 50 being served, that growth seems to have accelerated in the first quarter of this year.

“At a time of growing concern about the strength of the Scottish economy, the robustness of the construction SME sector is a definite good news story. Even more encouragingly, the number of enquiries for future work has risen solidly and one in two firms are now predicting that their workloads will continue to rise in the coming months.”

Nelson added: “This is not to say that the last three months have been without their challenges. Builders have experienced sharp rises in material prices since the depreciation of sterling in June last year and the subsequent spike in the cost of imported materials and products.

“Added to this is the rising cost of skilled labour which continues to be exacerbated by the ever-worsening skills shortage. The overwhelming majority of builders expect these trends to continue resulting in further increases in output prices in the next quarter – in layman’s terms, this means that builders will have to pass on these costs to the consumer.”

Nelson concluded: “The biggest concern for builders, however, will be the prospect of weakening consumer confidence. The risk of economic uncertainty impacting on consumer spending was already present due to confirmation of the UK’s departure from the EU and the possibility of another Scottish independence referendum in the medium term. Now that home owners will also be factoring in the UK General Election, Scottish builders may well temper their optimism.

“The repair, maintenance and improvement sector is the staple of most small local builders and is notoriously vulnerable to dips in consumer sentiment. Going forward, the industry is hoping that political stability will be re-established as soon as possible as both consumers and businesses respond best to political certainty.”

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