THE Federation of Master Builders (FMB) has said that the 2% fall in repair, maintenance and improvement (RMI) work in the UK building industry reflects reduced consumer spend as a result of the higher cost of living.
The association was responding to today’s ONS figures on construction output for August 2022.
Brian Berry, chief executive of the FMB, said, “Today’s figures showing a 2% drop in repair maintenance and improvement work highlight the real term effects of a contracting economy. This is the third consecutive monthly decline in RMI work, which is the backbone of the construction industry and is often an early indicator of what’s to come for the wider sector.
“Small local builders are under increasing pressure to keep their bottom lines in the black, as cash strapped consumers hold back on new projects ahead of a difficult winter period. The Government needs to set out the detail of their pro-growth agenda to help restore confidence in the economy. A win-win would be a nationwide energy efficiency plan to make our homes more energy efficient, which boosts jobs and lowers bills.
“A more immediate shot in the arm would be a reduction in VAT on RMI work, helping builders pass on savings to customers.”
Overall, monthly construction output increased by 0.4% in volume terms in August 2022, following a 0.1% rise in July.
Fraser Johns, finance director at Beard Construction, said it was ‘encouraging’ to see two consecutive months of growth in new work despite the ‘challenging’ economy.
He added, “The fact that the growth came from an increase in new work is a reminder that developers still have the confidence to commit to new schemes. This growth is sustainable if the sector continues to price jobs fairly and accurately, building in price fluctuations where necessary, rather than passing the risk down the supply chain.
“However, these positive trends could well be interrupted by the current volatility and uncertainty overhanging the wider UK economy. Material inflation seems to be calming down compared to earlier in the year but the rising cost of energy remains a concern.”
Toby Banfield, restructuring partner at PwC UK, described the ‘modest growth’ in new construction work as positive, however he highlighted the ‘continued uncertainty’ in the sector, especially outside of infrastructure projects.
“Increasing debt pricing is likely to make the project economics of new developments more challenging which may impact future new volumes,” he added. “Construction contracts are typically cash positive from a working capital perspective, which means customers pay up front for various phases of work before the construction starts.
“A drop in new project volumes reduces cash coming into the business, which leads to cash flow challenges – a move that is increasing pressure with previous cash receipts already used to meet unexpected material price increases on existing projects. Getting costs under control, doing proper bottom up forecasts and locking in as many variable costs as possible, with hedging or inflation options will all be critical for managing cash flow going forwards.
“The manner in which firms react could make all the difference over the next few months.”
