UK Energy Crisis: Construction in London

In 2022 the construction industry in the UK has seen impressive growth, however with the introduction of conflict in Ukraine and a cost of energy crisis sweeping the UK, energy prices are due to soar once again. What is the impact likely to be on construction firms in London and across the UK? Find out more below.

Media outlets have covered reports on the devastating impacts the rise in energy costs is having on UK household finances.

The increase in prices influenced by rises in global energy costs, initiated by a number of factors including lower pipeline supplies of gas, rebounding economies post-covid, and the conflict unfolding in Ukraine.

While majority of the media coverage has rightly been on the impact to households, less attention has been given to the crippling danger London businesses are facing due to the same crisis.

The construction industry is coming in as one of the top industries to be hit by the crisis. After initially being hit with a shortage of materials in the earlier part of the year, it is set to take a secondary hit due to the heavy use of materials manufactured through energy-intensive processes, such as laser cutting.

Where will the impact be seen?

As one of the most expensive cities for construction, construction companies in London are likely to be among those heavily impacted by the increase in energy prices.

Noble Francis, Economics Director at the Construction Products Association highlights that this winter we are likely to see a ‘significant increase in the cost of heavy-side products such as ceramics, bricks, steel, aluminium, concrete, and cement’; this is due to the fact that around one third of heavy-side manufacturing costs are energy costs.

With the spike in manufacture costs, it’s likely that manufacturers won’t be able to absorb the rise and may have pass some of this on to contractors.

Material prices have been rising over the last few years, however the extent to which energy inflation contributes is yet to be determined.

The Department for Business, Energy, and Industrial Strategy (BEIS) released figures outlining the percentage rise of individual materials from November 2020 to November 2021.

Some producers, including British Steel, have written to customers informing them of increasing prices for new orders of structural sections by £250 per tonne. An increase estimated at 25%.

British Steel wrote, ‘due to the crisis between Russia and Ukraine, we have seen extraordinary levels of volatility in commodity and energy prices, as well as significant disruption to international trade flows’. They go on to highlight the increase in energy prices being almost eight times higher than those in 2019.

Although the exact rises do not directly translate through the supply chain to the end customer, it’s advised that reliable and customer conscious suppliers are sourced to lower costs where possible.

Laser 24 are one of the top laser cutting companies in the UK, servicing Essex and London.

We have direct and fast links to London with our own means of distribution and delivery, which means that you don’t have to pay a third-party solution for delivery, keeping costs down where possible.

What can suppliers do to mitigate?

The past year has seen materials rise in price, with fabricated steel seeing almost a 70% increase.

It’s highly likely that suppliers will be unable to absorb the rise in energy prices to avoid passing on to the customer, which means some price rises are inevitable to accommodate inflation in material and energy prices.

However, the cost passed on to the customer through the supplier is down to each individual business.

“For many years, manufacturing efficiency and cost savings have been at the heart of Laser 24’s continuous improvement and lean manufacturing programmes. Reducing our energy consumption with the latest machinery, which is 3 times more efficient than Co2 technology, and replacing all our lighting with LED bulbs consuming 70% less energy are just a couple of things Laser 24 have done in recent years, to keep running cost low. These cost savings are passed directly back to our customers.” Steve Westgate, Business Manager at Laser 24.

What can contractors do?

Naturally, options are limited on how contractors can keep costs low to avoid potential disruption with clients or losing contracts as the energy crisis is impacting the project chain from manufacturer to end client.

Helen Waddell and Jonathan Hart, Partners at Pinsent Masons law firm provided advice for construction companies during this time.
They suggested to plan ahead where possible and review contracts with clients to discover whether they contain express clauses dealing with fluctuation and indexation clauses; determining whether they cover situations associated with the current market price increases.

It’s important to remain open and transparent with your clients about the circumstances, and to accommodate the changes where possible within your contractual obligations.

Laser 24 are here for you

Here at Laser 24, we maintain an open and honest dialogue with our clients about the current climate and how that affects the prices of our laser cut materials. We do our best to maintain fair prices for our exceptional products and laser cutting service in London.

We offer a range of services for a variety of materials, such as stainless steel laser cutting and aluminium laser cutting.

Laser cutting metal is a great solutions for you business. Laser24 are perfectly designed to accommodate industrial laser cutting solutions and would be happy to speak with you about how our laser cutter for construction is perfect for you.

We’re one of the top laser companies in the UK. If you’d like to find out more, contact us today.