One in four contractors report a fall in profit margins

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According to the latest Construction Trade Survey one in four contractors have reported profit margins, on balance, fell during the second quarter of this year…

The Construction Products Association has reported in its latest survey that 25 per cent of construction contractors have seen their profits fall.

The survey revealed that seven per cent of contractors reported higher tender prices in the second quarter, a decrease from a balance of 50 per cent in quarter one.

A total of 71 per cent of contractors reported that tender prices were higher than the same time a year ago for new construction work and improvements, and 65 per cent for repair and maintenance work.

A total of 35 per cent of specialists reported an increase in tender prices, while 14 per cent said they had experienced a decrease. Overall, profit margins fell for specialists. Around 22 per cent said they had seen an increase in margins compared to the previous quarter, but 27 per cent reported a decrease.

Building contractors reported output increased during the second quarter when compared to a year earlier, with 17 per cent experiencing this.

The private housing sector saw the the largest output growth, with a 43 per cent rise, on balance. Both housing and non-housing repair and maintenance recorded a nine per cent decrease.

The report showed the impact of rising costs, with one in four contractors reporting falling profit margins, despite an increase in demand for housing and commercial building. This was the lowest balance since the first quarter of 2013.

Construction Products Association’s Economics Director Dr Noble Francis said: “Firms across the whole construction supply chain, including building contractors, SMEs, specialist contractors, civil engineers and product manufacturers, all reported rises in output during Q2.”

He added: “Contractors reported a decline in repair and maintenance work in Q2, reflecting a drop-off in measures installed under government schemes to boost energy efficiency in recent months.

“The £23bn R&M sector will undoubtedly be affected by this and the government’s decision to close the Green Deal last month.”

In the latest Markit/CIPS PMI survey the construction industry recorded a fall in growth during July. Reports that a lack of skilled workers is thought to be a threat to recovery have also emerged.

National Federation of Builders chief executive Richard Beresford said: “The industry’s efforts to address skills shortages cannot take effect soon enough.”

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