Damp spring for Scottish builders as SMEs report slowdown in growth

Gordon Nelson
Gordon Nelson

Growth among Scottish builders slowed significantly in the second quarter of 2017 as political uncertainty and price concerns hit home, according to Federation of Master Builders in Scotland (FMB Scotland).

The FMB’s State of Trade Survey for Q2 2017, which is the only quarterly assessment of the UK-wide SME construction sector, indicated a double-digit decline in overall performance for construction SMEs north of the Border of 22 percentage points to +13.

According to the survey, one-in-four construction SMEs in Scotland now predict rising workloads in the coming months – down from one-in-two predicted rising workloads three months earlier.

England was the only home nation whose construction SME sector grew at the same rate as Q1 2017, though overall growth slowed down in the second quarter.

Across the UK, 83% of builders think that material prices will rise in the next six months.

Gordon Nelson, director of FMB Scotland, said: “In the first three months of this year, Scottish building firms were growing as fast or faster than their English, Welsh and Northern Irish counterparts. However, these latest results suggest that the Scottish building industry’s wings were clipped in the second quarter of the year. Our survey covered the campaign period for the snap UK General Election, as well as its indecisive outcome in June. It may be that this period of political uncertainty resulted in the consumer confidence of Scottish home owners taking a hit. As Scottish construction SMEs work predominantly in the private domestic sector, this could have had a knock-on effect on Scottish builders.”

Mr Nelson added: “Another concern is that over the next six months, the cost of doing business is set to rise for Scottish builders and cost pressures could put the brakes on growth among construction SMEs now and in the longer term. Wages and salaries are all projected to increase due to skills shortages and material prices are likely to continue to rise as they have done since the depreciation of sterling following the EU referendum.

“Building firms will have little choice but to pass these increases onto the client or consumer and this could further dampen growth for small construction firms. Looking ahead however, now that the political dust has settled in Westminster, we hope that the Scottish construction sector starts to fire on all cylinders once again and that the better-than-expected performance of the wider Scottish economy is reflected in the building industry.”

Recruitment difficulties are widespread, with 60% of construction SMEs struggling to hire bricklayers; 57% are struggling to hire carpenters and joiners; and 47% are struggling to hire plumbers. Almost two-thirds (62%) of construction SMEs expect salaries and wages to increase in the next six months.

Brian Berrry FMB
Brian Berrry

Brian Berry, chief executive of the FMB, said: “Rising material prices and salaries could be starting to dampen growth among construction SMEs. However, it is encouraging to see that the sector has continued to grow despite the recent snap General Election and the resulting hung Parliament. The construction SME sector is particularly vulnerable to any dips in consumer confidence that might come from periods of political uncertainty. It may be that a number of home owners decided to delay any big spending decisions on new extensions or loft conversions while the election campaign was underway – this would account for the slow-down in growth seen in the second quarter of 2017.”

Mr Berry added: “Looking ahead, almost two-thirds of construction firms expect wages and salaries to increase over the next six months and this is in contrast to stagnant wages elsewhere in the economy. Rising salaries are undoubtedly the result of the escalating construction skills shortage – construction workers know their worth and are demanding higher wages from their employers. The majority of construction SMEs are struggling to recruit key tradespeople such as bricklayers and carpenters and we’re seeing shortages in other trades, such as plumbers and plasterers, starting to creep up.

“With Brexit on the horizon and worrying talk of the so-called ‘Tier 2’ immigration system replacing the free movement of people, the construction industry urges Ministers to bear in mind their strategic house building and infrastructure targets before pulling up the drawbridge on EU migrant workers.”

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