Profit margins are holding steady but challenges await

Main contractors’ profit margins are holding steady but some are beginning to worry about a loss of projects as Brexit starts to bite, according to cost consultant Alinea.

In its latest market update, the firm said contractors faced multiple Brexit threats as the two-year EU withdrawal process begins in earnest, including a “sluggish” commercial sector that has seen investors reluctant to develop speculatively.

Contractors are also facing a double whammy of material and labour cost inflation, with the weaker pound driving up the cost of imported materials, while Brexit uncertainties have exacerbated existing labour shortages.

Alinea also questioned the government’s commitment to infrastructure spending after the Budget cut the transport department’s capital expenditure up to 2021 - although the education and health departments both got more capital cash.

Turning to skills policy, Alinea welcomed the government’s planned launch of ‘T-level’ technical qualifications for 16-18 year-olds, but warned the biggest problem facing construction was its poor image with young people.

“Construction clearly needs to rethink its image and how better to sell itself to compete with other, seemingly more attractive careers,” Alinea said.

Given continuing market uncertainties, Alinea stuck with its previous forecast of tender price inflation of 2% for London and the South-east this year - down five percentage points on last year’s average tender price increase of 7%.

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