Northern Ireland market intelligence: Inflation and politics risk stalling construction

Northern Ireland’s buoyant construction sector risks being sidetracked by inflation and political uncertainty.

Our latest Northern Ireland market intelligence report for Q1 2022 points to a positive outlook for the region’s private and public sectors following the disruption of the Covid-19 pandemic. Construction output in the region has increased by 7.8 percent year-on-year despite a small reduction in the quarter overall.

Construction output increasing

The report suggests enhanced digital ways of working and employing state-of-the-art construction methods to manage rising material and labour costs can benefit the Northern Ireland market significantly. Almost 60 percent of firms surveyed are reporting productivity levels to be at least 90 percent of pre-Covid levels, with over 65 percent expressing confidence they will return to full productivity in the next six to 12 months.

Operational capacity and contractor workload is increasing, with the private sector contributing to this, with projects temporarily paused during the height of the pandemic re-emerging. In addition to planned investment in the infrastructure sector, publicly funded projects are also set to increase, including City Deals involving culture, education and health.

Capacity and inflation limiting opportunity

However, businesses are expressing concerns around capacity and inflation which are constraining their ability to take advantage of market opportunities. Materials and labour shortages have resulted in 60 percent of project programmes being lengthened by between one and four weeks over the past three months.

At the same time, contractors are battling with live fixed-priced contracts, with rising costs being absorbed, rather than passed on, in order to meet delivery objectives. Emerging concerns of the industry include tax and duty changes, and in regard to limitations on the use of rebated diesel fuel, due to come into force in April.

The report highlights the continuing political uncertainty affecting the Northern Ireland economy as the backdrop to influencing the industry’s long-term performance. The recent collapse of the Northern Ireland Executive at Stormont, elections in May, and ongoing negotiations between the UK and EU over the terms of the Northern Ireland trading protocol post-Brexit, bring potential risks to the sector and could delay public expenditure on capital projects.

For the latest analysis and information on the Northern Ireland construction industry download the full report.