Rising costs threaten UK construction sector

British firms in the construction sector are facing higher materials costs and preparing themselves for further cost pressures in the coming months, as talks to determine Britain's exit from the EU begin.

Already, there are fears that sterling will experience further falls and make import prices even more expensive, a factor that is already causing a significant headache to those firms operating in the construction and manufacturing sectors.

Already, business owners say that they are dealing with a sharp spike in the cost of materials, and are fearful about the downward pressures on profit margins. Firms are now establishing how much of these cost rises can be passed on to customers without losing business.

EEF, the manufacturers' organisation, highlighted the fears of rising costs in its latest research into senior executives. On a more positive note however, a majority of the 281 individuals surveyed said that they had generally upbeat views about their firm's own prospects in the year ahead and that they were optimistic for an upturn in sales.

In its concluding report, EEF said that firms had already experienced a notable surge in the costs of doing business, which were already at a multiyear high. As the pound remains weak, it is expected that these cost pressures will ultimately lead to higher prices for consumers in 2017.

A similar survey carried out by the Federation of Master Builders discovered that 70pc of 232 construction firms it surveyed in Britain had also noticed a rise in the cost of materials, due to the drop in the value of sterling since the Brexit vote.

Director of external affairs, Sarah McMonagle said that thousands of small building companies were attempting to deal with the challenges of rising materials costs due to a weak pound. She pointed to anecdotal references of a 22pc price increase in Spanish slate and a 20pc rise in the cost of timber.

The Construction Products Association has also suggested that its members are bracing themselves for further price rises, particularly those that made bricks, steel and other 'heavy side' materials. Of these businesses, 78pc had seen a rise in annual costs. Amongst those manufacturing light side products such as lighting and insulation, 71pc had seen an increase.

Up to 25pc of construction materials are imported in the UK, which makes the industry particularly vulnerable to fluctuations in sterling.

Economists have already warned that, when article 50 is triggered to begin the practical separation of the UK from Europe, the pound will see further fluctuations against the Euro and other foreign exchanges. The formal talks to begin Britain's exit will begin by the end of March.

Inflation is also expected to rise as a result of the weakness of sterling, to a possible high of 3pc by year end, compared to the 1.2pc currently recorded.

Other pressures have been noticed too, with businesses voicing concerns around the change in direction of US politics and a general feeling that businesses faced greater risks than they did opportunities in the year ahead.

In the meantime, all British business awaits clarity from Theresa May’s government on the Brexit plan and the economic implications of the country's exit from the European Union.