Latest update on the construction industry

Growth forecast down
Growth in construction output next year is set to be almost a quarter down on previous forecasts, according to the Construction Products Association (CPA). Growth forecast for 2022 is down from 6.3% to 4.8% because of supply chain issues. Unsurprisingly, a shortage of materials allied with a skills shortage, rising energy prices, a shortage of HGV drivers and rising inflation are expected to put unprecedented constraints on growth for the remainder of this year and into the next.

On the plus side, overall growth in 2021 was forecast to be up from 13.7% to 14.3%, as 5-year government plans for roads, rail, water and energy projects, including HS2, have helped the industry weather the bad conditions. According to the Office for National Statistics, infrastructure was the only new work sector where the level of output for August 2021 was above the February 2020 level.
 
Although private housing output has been buoyant during 2021, the forecast for 2022 has been downgraded from 8% to 6%. Add a surplus of office space as a result of the move towards working from home, and lower demand for retail space, as the trend for online shopping continues, and it all points to a tough 2022 for the construction sector.
 
Small contractors hardest hit
While large contractors are better able to plan ahead and adjust to the difficult trading conditions, small contractors are feeling the biggest impact. At present, most small contractors have full order books for the next six months, but materials and skills shortages are threatening to strain capacity.
 
CPA Director, Noble Francis, says: “Large contractors and major housebuilders have a greater certainty of demand over the 12 to 18-month horizon… Small firms, however, are more focused on flexibility and have less visibility over demand going forward. Plus, they have less ability and resources to plan and purchase in advance. As a result, it leaves their business more exposed to availability issues and their cash flow exposed to sharp rises in costs.”
 
New steel supply crisis
In addition, there are concerns of a new steel supply crisis. A critical shortage of magnesium has been caused by the closure of magnesium plants in China due to rising energy costs. According to trade bodies for the metals industries, European supplies are expected to run out by the end of November, which could lead to the shutdown of steel production facilities. Magnesium is needed to produce key alloys used in the production of steel, with Chinese magnesium responsible for 95% of Europe’s steel imports.

Professional advice and assistance
It’s a tough outlook for the coming year, with the construction industry facing many serious issues and smaller contractors feeling the brunt of adverse conditions. Given the volatility of the market and the rapidly changing landscape, it’s never been more important for contractors to protect their interests and have the correct level of insurance in place.
 
As a broker with 50 years’ experience and comprehensive knowledge of the construction industry, we can advise on and arrange a full range of contractors insurance solutions, from all risks and liabilities cover through to contract wordings and surety bonds ensuring adequate insurance is in place to meet the changing landscape.
 
Areas we can advise on include: homeworking, tools & equipment, vehicles, third party insurance, closure of contract site, cessation for over 90 days, plant removal from site, storage of materials, securing site against third party access and unoccupied premises, to name but a few…

To discuss your requirements, whether new or existing, call us today on 01992 703 000 or email: insurance@mcdonaghs.co.uk
 
Sources:

Overview - Building: CPA downgrades output growth forecast by nearly a quarter for 2022
 
Latest figures from Office for National Statistics - Construction output in Great Britain: August 2021

Magnesium shortage - Construction News: Concerns raised amid new steel supply crisis
Building: Industry warned of ‘imminent risk’ of steel production shutdown amid critical magnesium shortage