An increase in material and labour costs could pose a serious threat to the recovery of the construction sector, the Federation of Master Builders (FMB) has warned.

In the FMB's latest State of Trade Survey of member firms, it is revealed that the net balance for workloads, expected workloads and enquiries in the third quarter of 2013 was positive across almost all areas of the UK for a second consecutive quarter.

There was a marked improvement in the private new build and residential repair and maintenance sectors, while overall, 42% of small builders saw their workloads increase.

However, material costs, wages and salaries are expected to continue rising over the next six months, with many building companies facing the reality of having to raise their prices.

Brian Berry, Chief Executive of the FMB, said: "Britain's builders have endured some of the most testing economic conditions in living memory and the lean years have taken their toll. Construction SMEs have battled to maintain staffing and capacity while trying to keep prices competitive.

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"Material costs have remained high throughout 2013, and further increases could snuff out this recovery in its infancy, especially if companies that have cut their profit margins to the bone to beat the recession are now forced to pass on those costs to their customers.

"The Government's 'Help to Buy' scheme is having a positive impact on the housing market, helping create demand for more privately built houses which is having a knock-on effect for the home repair and refurbishment sector. However, there is a danger smaller house builders won't benefit from this upturn because of barriers they face to market entry.

"Limited access to finance, the costs of regulation and a shortage of small sites for development are the key barriers for many smaller house builders. Also, the Green Deal is not proving attractive to householders, with the result that small building companies aren't benefitting from any new work to upgrade existing homes.

If Britain is to make its housing stock greener and more energy efficient, then we need to see a reduction in the level of VAT charged on all domestic building work. This would make it more affordable for homeowners and landlords to get essential repair and maintenance work done, and ensure the upturn in the building sector is not stifled before it has properly begun."

(JP/CD)