Engineering services sector feels the pinch despite growing demand

The latest quarterly survey of the UK engineering services sector, backed by leading trade bodies ECA, BESA, SELECT and SNIPEF, reveals that electrotechnical businesses are feeling the effects of the economic slowdown and a shortage of skilled workers, despite high activity and growing order books.

While 2 in 5 survey respondents (40%) said their business’ turnover increased in the final quarter of 2023, A third (34%) say staff shortages are the biggest threat to their business and predicted business growth to stagnate in 2024.

The survey also reveals that most business owners in the sector continue to grapple with high prices and slow payment times. Nearly two thirds (62%) of respondents said commercial clients and main contractors took 31 to 60 days to pay for work, and 15% said this could take 61 to 90 days.

Half (47%) of respondents said public sector clients can take 31 to 60 days to pay. One in 10 (9%) said they can take 61 to 90 days.

Three in 5 (60%) respondents said between 1 and 10% of their turnover is currently being held in retentions.

The findings underscore ECA’s recent work to make payment fairer for contractors. Following consistent pressure from ECA over the past two years, draft legislation to amend the Reporting on Payment Practices and Performance Regulations has now been laid before Parliament for approval.

As well as extending the Regulations until 6 April 2031 – a key ECA ask – the draft legislation confirms that large companies will be required to report on several new metrics from 1 January 2025.

Meanwhile, research by the CBI has shown that the UK green economy far outperformed other sectors in 2023, growing by 9% to around £74bn. ECA works closely with its Members, industry partners and Government to raise the profile of electrical contractor in the transition to Net Zero Carbon and believes this is key to returning the wider construction industry to growth.

Rob Driscoll, ECA Director of Legal and Business, said:

“In light of the wider economic slowdown, these latest survey figures are far from surprising. However, they offer some vindication for the hard work ECA has been doing to give electrotechnical and engineering services contractors a voice, and the opportunity to play their part in the nation’s economic recovery.

“While the outlook for the sector is pessimistic for the rest of 2024, there are signs that the economy could turn a corner by 2025 and the sector could return to growth.

“The challenge is attracting and retaining talent of a highly skilled workforce during the intervening period where commercial behaviour hardens in order to meet growing demand for more advanced low-carbon solutions like solar panels, electric car chargers and heat pumps.”

Debbie Petford, BESA Director of Legal and Commercial, said:

“Contractors face a tough combination of economic and legislative challenges that are clearly hampering short-term growth, but the longer-term picture is more promising. The need for high quality building engineering services is more pressing than ever because of the UK’s legal obligation to cut carbon emissions and mitigate the worst impacts of climate change.

“On top of that we have the biggest change to building safety regulations in a generation radically changing the way firms operate. All of this is ramping up pressure on already hard-pressed workforces, and reinforces the importance of investing in recruitment and retention of skilled people able to work with the latest technologies – including rapidly evolving digital systems – to improve our productivity and prepare to meet future demand for our sector’s expertise.”