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🔎 Construction Directors Market Report For March 2023 Q1
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🔎 Construction Directors Market Report For March 2023 Q1

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Today's Budget - Commentary

Yes, we already knew about the Corporation Tax for companies increasing from 19% to 25%. All firms which make more than £250,000 in profit will pay 25% tax on their profits from April.

(if your accountant has not had a talk with you regarding this and how it can affect your already planned projects and pricing then please consider working with Saint, the Trade Accountants - Working with one-man bands to multi-million-pound firms)

Hunt attempted to ease the pain for smaller companies by increasing the Annual Investment Allowance to £1m meaning firms can deduct the full value of their investment from that year’s taxable profits.


He said that every single pound a company invests in IT equipment, plant or machinery can be deducted in full and immediately from taxable profits.


The Chancellor has made tackling inflation his top priority with the Office for Budget Responsibility forecasting a fall to 2.9% by the end of this year from the current 10.1%.


The OBR also confirmed no technical recession in the UK this year and steady growth across the economy in the coming years of 1.8% in 2024, 2.5% in 2025, 2.1% in 2026 and 1.9% in 2027.

Hunt confirmed plans for 12 new investment zones each with the potential to become “a new Canary Wharf” alongside an extra £200m for the annual pothole fund.


The budget was announced to a background of the Stock Market tanking with the FTSE 100 down 3% by Wednesday lunchtime.


So


Not much in it for us in the trade.


They say try not to expect too much and you will not be disappointed but with all the pressures on the trade at the moment I think there could have been some lifelines or easing of some pressures. The “ new '' AIA does not really help if cashflow and confidence is already a concern. Fuel duty is being frozen but it is already way above its right place as are energy costs.


We seem to be walking into endless Government controls and costs like the ULEZ and LTN’s (15-minute city) causing chaos and stealth taxes. Working in the construction industry is hard, it comes with many challenges and so there has to be a balance of what is right and what makes sense just as business owners let alone the bigger picture.


We will have work as there is a drive to net zero and making buildings compliant for example but that is then all subject to fine-related punishment in the way of not being approved for lettings such as office blocks if owners do not comply. There has to be a balance of is it actually worth it and there has to be a carrot on the stick to make us want to invest into these projects and make it worth it.


At the moment it seems all stick and no carrot. 


Our advice is to work with Saint who looks to give you as much insight for the trade and confidence for the journey ahead by looking to provide data and advice so you can navigate correctly and make all the right moves next.


It seems we need to once again dig deep and come out fighting to be the ones standing at the end as winners. We need to pull ahead of the competition who thought it’s ok to stay as they are and just stay as they were but they will suffer as they do not know their numbers or real business traction points.


Now more than ever we need to raise the bar by working smarter, not harder and being open to working with other people which is a mindset shift we need you to make before you even pick up the phone to Saint. If you want to stay where you are we cannot really do much for you, it’s life snakes and ladders, going so far only to go back to the beginning again.


Saint want you to win.


So contact Saint today and stop the struggle, they can help you refocus on the areas of the business where you have the biggest impact to ensure success, bringing back control of business and lifestyle. One of our big goals here at Saint is peace of mind and we look to deliver that in all areas of your business.


Todays Budget Report - On release of budget

The UK construction sector is braced for the Budget on today (15 March), which could signal a slowdown in infrastructure investment but fresh money for low-carbon initiatives


Chancellor Jeremy Hunt will take to the dispatch box at about 12.30pm today to deliver a Budget that may be more fiscally expansive than had been feared, given the UK is now expected to avoid the recession that was widely predicted last year.


In the lead-up to the announcement, the construction sector has issued plenty of demands. Last month saw workloads stoop to their lowest level in a year and the government’s decisions on key infrastructure projects have not instilled confidence.


Last week, it delayed work on the Lower Thames Crossing in London and parts of the HS2 high-speed rail mega project; it is due to spend 25 per cent less than expected on “levelling up” historically underinvested regions of the UK; and rampant inflation has cast doubt on its pledge to build 40 hospitals. In Wales, major road- building schemes have been scrapped. 


The civil’s and infrastructure work announced in the chancellor’s Autumn Statement ran into the sand at the end of last year suggesting that the latest Budget might present an opportunity for the government to expand on these plans.


Politicians seeking to stimulate growth have in the past looked to construction and “shovel ready” projects to kick-start the wider economy. The question now is about the extent to which 2023 will see similar investment pledges.


Construction investment is often seen as a lever of growth, given the multiplier effect [of investment and its knock-on effects throughout the economy], and the chancellor has to announce some stimulus measures to get our economy moving in the right direction or we’ll be bumping along the bottom for years.


According to the Guardian, up to £20bn is set to be pledged to reduce the UK’s carbon emissions, alongside a reset of the government’s plans to back the development of small nuclear reactors and a wave of green investment, mirroring efforts in the United States. This is likely to be the primary infrastructure investment announced.


But the industry continues to call for investment in energy-efficiency retrofits. While the government pledged £6bn for green building upgrades in the Autumn Statement, significantly more money is needed to ensure the UK meets its net-zero carbon goals.


The British Property Federation (BPF) argues that the government has a critical role to play in supporting homeowners and needs to act to relieve the pressures facing those in the residential sector, to ensure that the UK meets its net-zero target. The BPF is calling on the government to zero-rate VAT on building repair and maintenance of residential buildings to incentivise essential upgrades across the residential sector.


The current approach of targeted VAT relief on the installation of energy-saving materials is ineffective, as it fails to recognise that energy-efficiency improvements are rarely carried out in isolation, it has been argued.


The issue could form part of a Budget announcement relating to commercial properties, which are coming under increased pressure for their energy efficiency to be overhauled. Many commercial landlords have until 2027 to ensure their Energy Performance Certificate rating is a C or above, or face being left with un lettable offices.


Eighty percent of commercial and residential buildings that will exist in 2050 – the deadline for reaching net zero – have already been built.


The government needs to recognise the importance of incentivising energy upgrades across both the commercial and residential property sectors in next week’s Budget. The chancellor has a clear opportunity to alleviate costs for households and encourage investment in measures that improve a property’s energy efficiency.




Construction output fell 1.7% in volume terms in January 2023

The latest ONS data: It’s unfortunate to see a dip in output after a resilient end to 2022 capped off a year of growth. But it indicates the uncertainty in the economy at the moment, and it’s difficult to know if growth will return soon.


The new year certainly didn’t offer the new start many in construction would have hoped for with a decrease in output in January and a fall in new work. This is driven by continued economic uncertainty and higher borrowing costs contributing to some clients holding back on their commitment to larger projects.


There was however an uptick in repairs and maintenance works, thus despite clients feeling less inclined to pull the trigger on high-value blockbuster jobs, there will be those still pushing ahead with improving and maintaining current stock. To combat a volatile and uncertain landscape, businesses must remain flexible and raise their profile in the markets that will be strongest in the next 12 to 18 months.


While this snapshot of January shows the challenging start to the year for many of the industry’s key sectors, businesses will be encouraged by a much stronger February. Some areas still continued to show weaknesses, especially the housing sector, but a lessening of supply chain pressures and recessionary fears helped to boost both new orders and overall confidence.


However, this shows the somewhat ‘hot and cold’ nature of the sector, which is driven by uncertainty in such difficult times. Staying close to suppliers and stakeholders will remain a key priority, as will being able to adapt to changing market conditions and project demands.


The latest monthly ONS construction industry bulletin has January having the lowest monthly value in level terms (£14,841m) since February 2022 (£14,719m).


While the decline is attributed partly to economic conditions – particularly in the housing sector – the heavy rain in the first two weeks of the month put the brakes on a lot of construction work, it is reported.


The decrease in monthly construction output came from a decrease in new work (down 4.0%), partially offset by an increase in repair & maintenance (up 2.0%) on the month.


The main contributors to the monthly decrease were infrastructure new work and private new housing, which decreased 6.5% and 3.0%, respectively.


Alongside the monthly decrease, construction output also saw a decrease of 0.7% in the three months to January 2023. This follows four periods of consecutive growth in the three-month-on-three-month series; the decrease came solely from a fall in new work (1.2% fall), as repair & maintenance was up 0.3%.


The official ONS numbers broadly tally with the monthly construction purchasing managers’ survey which also reported a declining activity in January, month-on-month, with house-building the weakest-performing category in terms of growth (or lack of). However the Purchasing Managers Index (PMI) returned to positive territory in February, indicating that the industry is now back in growth mode.



Market bounces into positive ground beating months of decline

The monthly survey of construction buyers suggests that construction activity grew more quickly last month than it has done since last spring. Commercial work led the way and civil engineering activity also grew, but house-building activity decreased once again for a third successive month.


The headline seasonally adjusted S&P Global / CIPS UK Construction Purchasing Managers’ Index (PMI) registered 54.6 in February, up from 48.4 in January and above the neutral 50.0 threshold for the first time since November. The latest reading was the highest since May 2022.


Total new work picked up in February, as signalled by an improvement in order books for the first time since November 2022. Construction companies reported signs of a turnaround in demand for commercial projects due to the improving near-term economic outlook.


Forthcoming project starts contributed to a modest upturn in purchasing activity. Despite rising demand for construction products and materials, the latest survey indicated that supply pressures continued to ease. The respective index signalled that delays with vendor delivery times were the least widespread for more than three years.


This also contributed to a reduction in input price inflation with prices rising at their slowest since November 2020. Higher input costs were mostly linked to suppliers passing on rising energy bills and salary inflation, but this was offset by lower transportation bills.


Business expectations for the year ahead improved further from the 31-month low seen in December 2022. Around 46% of the survey panel anticipate a rise in construction activity over the year ahead, while only 13% predict a decline. The resulting index pointed to the highest level of optimism for 12 months. Construction firms often noted signs of a recovery in client demand, despite interest rates and recession risks.


Business activity in the UK construction sector returned to growth during February as a rebound in commercial work and civil engineering output helped to compensate for housing market weakness. Some firms noted that fading recession fears and an improving global economic outlook had boosted client confidence in the commercial segment. At the same time, work on major infrastructure projects such as HS2 contributed to the expansion of civil engineering activity in February.


Cutbacks to new house building projects remained the weak spot for construction sector activity, with total residential work falling for the third month running in February. Survey respondents often commented on subdued demand and a headwind from elevated interest rates.


Construction companies appear increasingly confident about the year ahead business outlook, with optimism rebounding strongly from the lows seen in the final quarter of 2022. Softer inflationary pressures and the least widespread supplier delays for just over three years were factors supporting business expectations in February.


The overall figure paints a bright picture of progress in the construction sector with a robust jump in output last month. Supply deliveries were at their most improved since January 2020 and some commentators mentioned sourcing closer to home to avoid logjams in supply chains caused by China’s Covid policy and the war in Ukraine.


New order levels were also at their highest since November 2022 but these strong numbers belie the fact that there is uneven growth in building activity in the UK. Commercial and civil engineering projects dominated this performance with activity on projects such as HS2 and commercial builds.


Residential building on the other hand was the odd one out with a third month in contraction as mortgage rates put a dampener on the number of house purchases and buyers were unwilling to commit.


Builders themselves remained cheerful as optimism rose sharply and almost half of the survey’s respondents believed business would improve in 2023. With the slowest inflationary rises for raw materials since November 2020 this offered some relief, and it was cheaper transportation costs that helped offset salary and energy costs, which were still rising.



However, not everything is so optimistic, the UK construction is on the cusp of a slowdown. Today’s PMI reveals that February was a very strong month for UK construction. However, in reality, the picture is very mixed. Some construction firms are coping well and some are not.


At this time of year for many regional builders a lot rides on the local authorities. Some are pushing lots of work through before they close their 2022/23 books in March. This is boosting activity but the overall picture is a bit gloomy when looking forward.”


The London market feels like it is heading for a slowdown and all the big house builders forecast contraction over the next year. One or two well-established construction firms have already declared themselves insolvent. It looks like we’re straining to avoid a recession with new orders declining and the prospect of more interest rate rises.


Material supplies are not a problem but the labour shortage is still a key issue. Too many firms are fighting off the effects of rising costs with fixed price contracts. Some firms are successfully winning new work under better terms but are experiencing delays which tests the adequacy of working capital.


Hopefully the strong performance we saw in February continues. If not and we do see a downturn then regrettably the building industry regularly goes through these periods and firms have to remain optimistic that the market will turn around and they will survive to benefit.



No Growth but no recession either

Monthly construction output in Great Britain saw zero growth in both November and December.

December 2022 saw a 0.5% increase in new work on the previous month (offsetting November’s 0.4% fall in new work) but there was a 0.7% decrease in repair & maintenance, month-on-month (similarly offsetting November’s 0.6% rise in R&M).


At the sector level, December saw growth in non-housing repair & maintenance (up 5.4%) and infrastructure new work (up 3.7%). Private housing repair & maintenance was down 8.5% and private new housing was down 2.3%, according to ONS data.


For the fourth quarter of 2022 overall, construction output increased by 0.3% compared with the third quarter. This increase came from growth in both new work (0.4%) and repair & maintenance (0.1%).

Annual construction output increased by 5.6% in 2022 compared with 2021, which follows a record increase in 2021 of 12.8%.


Total construction new orders decreased 1.8% (£242m) in the fourth quarter compared with Q3. This was mainly down to a 9.6% (£380m) fall in private commercial new orders and an 11.8% (£305m) fall in infrastructure.


The ONS reports that anecdotal evidence indicates that colder temperatures in early December 2022 extended the regular Christmas shut-downs by longer than expected for many businesses. The Met Office has confirmed that December 2022 was the UK’s coldest December since 2010. Businesses with less outdoor work were less affected by the adverse weather, the ONS bulletin says.


After the flat growth witnessed in November, today’s figures prove that the construction industry is still swimming against the tide in many work areas. The cold weather in December undoubtedly had an impact, but while the continued increase in infrastructure work is welcome, more worrying is the fall in private new housing work, reflecting the wider economic uncertainty. 


This trend is likely to get worse, with major volume house builders all warning this week they would be building fewer homes as customers put off major purchase decisions amid the cost-of-living crisis.


Meanwhile, despite more recent upbeat forecasts of the extent of the UK recession, construction would benefit from an injection of confidence. We are hoping that the chancellor, in his budget next month, provides incentives to boost house-building and also to encourage the greening of buildings to stimulate the industry’s recovery and help making inroads towards the net zero target.


As predicted and many firms prepared for, construction output continued to flatten into December as ongoing impacts from high interest rates and diminished confidence impacted new housing.


But once again, the data shows a tale of two halves. The slowdown in housing work in both private new housing and private housing repair and maintenance was offset by an increase in new work across key sectors. The best performing were infrastructure new work and non-housing repair and maintenance which certainly mirrors what we were seeing and the projects won.


Any appetite for new commercial work will certainly make for encouraging news, especially as energy costs continue to stabilise and material costs for once stay within expectations. While the cost to borrow still remains higher than many have become accustomed to, we’re starting to see positive indicators that inflationary pressures are beginning to ease.


Those firms that can demonstrate their skillset in delivering smaller, specialised projects in key sectors such as education, healthcare and both local and central government will be well placed in the coming 12 months. Construction firms need to stay close to all stakeholders, continue to adapt, and remain lean and flexible in the months ahead.



Timber Imports

According to trade body Timber Development UK (TDUK) The quantity of all imports in 2022 totalled 9.3 million cubic metres, 2.4 million cubic metres less than in 2021.This was driven by reductions in softwood imports, with volumes 25% lower than the record totals seen in 2021. Despite the significant fall in volume and total value, the average cost price of softwood imports rose by 7% as global demand remains strong.


Only hardwood saw growth last year, with volumes up 7% in 2021. Hardwood imports totalled 576,000 cubic metres, at a value of £433m, establishing 2022 as the busiest year for hardwood imports into the UK this century.


Despite volume volatility in 2021 and 2022, average timber imports have increased gradually since 2009, suggesting long-term growth.


2021 was a record year for timber imports in the UK but it was clear from Q2 onwards that this was unlikely to be emulated in 2022.


Demand for timber slowed last year from the dizzying heights of 2021, with high inflation and economic volatility harming consumer confidence in key sectors like retail and RM&I. Political instability in Q3 also undermined confidence in the housing market and reduced housing starts and timber


Supplies of timber on the ground remained healthy as the year progressed, reducing the need for further imports. Despite a tricky 2022, there is room for optimism, with members reporting good demand in the early months of 2023.


The economic outlook has also improved, with the CPA [Construction Products Association] predicting just a shallow recession this year and growth heading into Q3/4.


Overall, the 2022 stats show that despite recent import volatility, timber is heading in the right direction long-term, with an upward trend seen since 2009. The UK government looks to decarbonise the built environment using timber and achieve net zero by 2050.



Labour costs hit 1k per week

A major payroll survey, which provides payroll services to 2,600 construction SMEs, recorded a 1% increase in average pay during December 2022 to £1,002. It was found that the average pay packet in its £2b payroll was £945 per week during 2022, a below-inflation increase of 4.5% on 2021.


During the last calendar year tender opportunities are slowing down but they have full order books, which they are struggling to fulfil. The labour market is still feeling the effects of former chancellor Rishi Sunak’s coronavirus support schemes, which paid people a lot of money to sit at home. At the same time, huge infrastructure schemes like Hinkley Point and HS2 entered new phases and created extra demand for skilled labour.


House-builders pushed ahead to get homes out of the ground before big changes to building regulations in the summer and consumers have been spending savings built up during lockdowns on home improvement projects.


With Brexit, we have consistently said the impact would be felt gradually over time and we are seeing the supply of skilled tradespeople from Europe withering on the vine. Europeans would always come here to work and then go home again but now nobody is replacing them. The routes for working visas are not practical for most construction companies and smaller businesses.


These are the forces driving up labour rates. They are creating plenty of opportunities for the self-employed to earn a handsome living as the most productive and flexible part of the labour market.


With the budget news of today and indicators from above the market has seen a similar pattern played out but in the main the feeling on the ground is it's busy and long may it continue. Of course that's not without its challenges from the Government having joined up thinking which seems to be amiss most of the time.


We could also do with seeing more confidence being on hand to the small companies.

That's a Wrap! 

We hope this information in the report has been of some use to you. We do try to collate information from as many different areas as possible so please do refer to last months report as well for a crossover of information as some data sets are released at different intervals through out the year.

We will see you again soon! 

If you are already a client of Saint, please feel free to discuss with your business development manager to discuss this report and to provide specific data for your sector.

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🔎 Construction Directors Market Report For March 2023 Q1

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