Rising materials and labour costs see contractors fearing downturn, says Gleeds report

Contractors are collaborating increasingly in a bid to cope with materials and cost inflation, with many fearing an imminent economic downturn, according to a report by Gleeds.

The cost consultant’s summer market report, due to be published this week, reveals that 88% of firms were struggling with labour supply in the second quarter, with 96% reporting an increase in rates over the same period.

Roughly 77% of respondents said they were increasing collaboration, while 81% of contractors said they were actively recommending and sourcing local materials to help overcome supply chain disruptions, indicating a trend of increasing localisation.

More than half of contractors said materials and labour cost escalation was the biggest threat to the industry, followed by the Russia-Ukraine war and material availability.

The rising cost of labour shows no sign of abating, either, with more than 60% of survey respondents expecting a pay rise in the next six months – the majority anticipating that it will be between 3-6%.

Data published recently by payroll firm Hudson Contract showed pay packets for self-employed workers increased in June, despite a double bank holiday.

Respondents noted recruitment challenges across most trades, particularly groundworks, bricklayers, joiners, steel fixers and mechanical and electrical installers.

These labour troubles, alongside the huge price rises seen since the beginning of the year, have hit market confidence, with data showing the weakest rise in new orders since October 2021.

More than a quarter of contractors predict that tender opportunities will decrease in the third quarter of 2022, and eight in 10 say they are seeing projects stall.

But the gloomy outlook has helped to stabilise the price of some commodities, with the cost of aluminium, copper, zinc and nickel all falling.

In a note accompanying the figures, Douglas McCormick, group executive director at Gleeds, said there was “hope that materials and product price increases will stabilise thanks to levelling/reducing commodities costs and weaker demand”.

He added: “Although with the fear that constrained gas supplies from Russia to Europe will result in energy rationing and spiralling energy costs as alternative supplies are sought, we are not likely to have seen the last of price rises.”

What is more, the report said there remained a strong pipeline of work in the longer term.