Labour inflation warning amid slow recovery forecast

Staff shortages and wage inflation are set to become bigger problems than material supplies in 2023, a key figure has warned contractors, as data firm Glenigan predicted a “challenging” period for the sector.

Builders Merchants Federation (BMF) chief executive John Newcomb, who co-chairs the Construction Leadership Council’s (CLC) product availability working group, said “serious concern” had been expressed about labour supply and cost.

The problems may supplant product availability issues in 2023, among the key risks facing the industry”, he added.

Newcomb’s comments came within Glenigan’s annual forecast report, which predicted a 2 per cent fall in the underlying value of project starts this year.

Although an 8 per cent rise in this figure, which excludes very big one-off schemes, is anticipated in 2023, quarterly starts are expected to remain below the high seen at the start of 2021 for the foreseeable future.

Only 2 per cent growth is expected in 2024, showing the slow nature of the recovery expected after the pandemic.

Building Cost Information Service (BCIS) executive director Joe Martin said materials supply would remain “problematic” for the next two years, but he expected prices to stabilise. Material shortages and price hikes have caused major headaches for contractors this year.

He also warned that certain site rates for staff had jumped by 11 per cent in the year to the first quarter of 2022, while inflation would see wage awards “rising significantly” in the near future.

The fortunes of housebuilders appear to be closely linked to those of the broader industry over the next few years.

Private housing starts are expected to drop by 5 per cent this year, according to Glenigan, due to a combination of economic factors weakening demand. These include the withdrawal of the temporary reduction in stamp-duty rates, weakening household incomes, higher taxes and a rise in interest rates.

However, with planning approvals and contract awards up, the body expects a surge in activity as conditions improve, leading to a 14 per cent rise in private residential starts in 2023, and a slight further strengthening in 2024.

Civil engineering starts are predicted to fall by 12 per cent this year and then recover by 5 per cent in 2023, before staying flat in 2024.

Despite the switch to remote and hybrid working patterns, the value of new office construction projects is expected to increase steadily, by 10 per cent this year, by 7 per cent in 2023, and by 16 per cent in the final period of the forecast.

Drops in industrial and health work are expected in 2023.

Glenigan economics director Allan Wilen described the short-term picture as “challenging”.

“We should adopt a sanguine approach for the next few years,” he added. “Markets sent into turmoil by the Russia-Ukraine war are starting to stabilise as new supply-chain solutions are developed and established.

“Of course, in the near future, construction and building product costs will remain high. However, this situation will no doubt encourage a burst of imagination and innovation, which will see the sector weather the current storm and progress – if not to sunny uplands then at least towards a trajectory of upward growth.”

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