Despite a high rate of productivity over the course of the pandemic, the UK construction industry is not in the clear yet.
Recent months have seen construction firms across the country struck by a shortage of materials, as well as a decline in the number of workers available. As prices for a wide range of building materials rise, firms are finding it increasingly difficult to make a profit – and things are set to prove even more challenging as the months tick by.
In their latest report, consultant firm EY warned that the number of profit warnings in construction and materials firms were at a five-year low during the first half of 2021. Although projects have continued thus far, the continued shortage of both materials and workforce, and general ill health of the supply line, could make things considerably worse for the second half of this year.
A range of crucial building materials, particularly cement and timber, have become concerningly limited in supply due to the continued impacts of both Brexit and Covid-19. Orders of bulk cement have been constrained, despite the fact that kilns at UK cement suppliers are all fully operational – this is an issue whose source lies at the very heart of the construction industry and the wider global economy. Stock shortages, delivery delays, and steeply rising inflation, have all coincided with an increased demand for the materials themselves.
Inflation on materials has risen by 10-15% compared to 2020, but some individual products have been struck more sharply than others. The price of most timber products, for example, has risen by between 20-50%. Plastic products, roofing products, landscaping products, insulation and more, have all faced shortages, causing some suppliers to simply cease stocking certain products due to their lack of economic viability. Not only are fundamental materials harder to find and more expensive to buy – they aren’t affordable whatsoever.
This is a crisis hitting each and every element of the construction industry, and predictions are being made of project delays further down the line. Ian Marson, the construction leader of EY-Parthenon UK, warns that ‘cost inflation may put new projects at risk’, despite the fact that ‘existing projects are continuing’. The issue might be, he suggests, in funding and developing future projects, even though current ones are underway. He goes on to say:
‘Companies with inflation clauses in their contracts should be able to weather short-term price increases but if prices remain high and shortages continue, project delays may become inevitable’.
So what might the solutions be? The initial answer would be to continue the drive for training and upskilling, to turn the tide against the falling labour force. Meg Wilson, the turnaround and restructuring strategist for EY-Parthenon, suggests that the way forward lies in the ability of firms to ‘strike a balance responding to current demand while defending themselves from potential problems’:
‘Businesses reopening or expanding trading are balancing the investment and costs needed to meet increased demand against the removal of government support and the potential for setbacks’.
A cautionary approach, forward thinking, and sensible investment, then, is the way forward for an industry battling the trials and tribulations of a world still dominated by Covid-19 and the political developments of recent years. The industry is well-stocked with individuals who understand the challenges ahead. Whatever happens, we know only too well how the construction industry has weathered many storms over the last year. It is a resilient machine, and there is no doubt that, despite the difficulties ahead, it will emerge stronger than ever.