Ben Dyer, CEO of Powered Now, discusses the storm brewing for small firms while order books and confidence is sky high.
Since the reopening of the construction sector in the summer of 2020, confidence has been sky high; the latest IHS Markit/CIPS construction PMI exceeded forecasts to jump from 64.2 to 66.3 in June. This was the highest reading since June 1997 and well above the 50 mark that separates growth from contraction.
These works have largely come in the form of restarting delayed projects, critically around office development, leisure and hospitality. New build residential work has also experienced a major boost, along with domestic renovation, with higher spends in both categories.
However, detailed within the latest report, the average prices paid for products and materials increased at record speed; a trend to be expected amidst material and worker shortages. However, what are the causes for this?
One could be excused for forgetting, but the initial Covid lockdown both in the UK and Europe was considerably tougher than the most recent events. In March 2020 the entire UK material supply lines were put on pause for a number of weeks. While the headlines were dominated by the lack toilet paper and pasta, for the trade and construction sector this was plasterboard, cement and many other essential materials. The result of which was that prices of these products shot up rapidly as availability decreased.
While it's easy to blame the pandemic for these short-term supply constraints, there is another fly in the ointment, Brexit. Without passing judgement on the decision to leave the EU, Brexit has lengthened the supply lines for a number of core supplies from Europe.
A significant majority of materials required by UK trade and construction are manufactured or processed in mainland Europe. As the pandemic swept the continent almost all major countries suffered shortages in stock; now however, manufacturers are refilling the supply chains that are closer to home first, with the UK falling to the back of the queue.
While this should ease over time and it is encouraging to see a number of efforts to move material production to the UK, there is no quick fix. This has led to further hurt for SMEs in the trades as larger companies have been able to purchase these products at higher prices, to the detriment of their smaller competitors.
At Powered Now we are delighted to witness the increase in both order books and confidence. Higher demand for construction and trade services has a real-world trickle down to small and medium trade businesses.
However, we are very worried about the implications of stress on the UK supply chain. While some of these issues will naturally clear as the threat of Covid and Brexit reduces, the short-term impact on the smaller contractor market threatens to derail these good weeks of growth.
We are especially critical of larger firms choosing to stockpile. The industry is only as healthy as the workforce within it, and these larger companies rely on much smaller contractors to operate, of whom are being unfairly penalised. It is incredibly shortsighted of larger firms to use their leverage over smaller ones. Not only does this hurt the economy but will eventually catch up with them due to their reliance on the SME sector for contract staff. We hope this practice, like Covid, can eventually be eliminated.