Home News Demand and confidence high within construction but severe challenges remain around supply

Demand and confidence high within construction but severe challenges remain around supply

by Sophie Stevens

The latest IHS Markit / CIPS UK Construction PMI data shows construction output growth hit a 24-year high in June, with the recovery led by house building and commercial work, but the challenges around material supply and price continued to bite, with supplier delivery times lengthening to their greatest extent on record, and input price inflation at its highest since the survey began.

The data shows sharp increases in business activity were seen across all three main areas of the construction sector monitored by the survey, with the seasonally adjusted IHS Markit/CIPS UK Construction PMI Total Activity Index at 66.3 in June, up from 64.2 in May. 

Construction work in the house building sub-category (index at 68.2) reportedly increased at the fastest pace since November 2003, whilst the second-best performing area was commercial work (66.9), with output rising at the strongest rate since March 1998. 

Survey respondents were said to have widely commented on a rapid turnaround in demand for new construction work, especially residential building and commercial projects related to the reopening of the UK economy. Whilst total new orders are said to have increased in each of the past 13 months, the latest expansion was reportedly slower than May’s survey-record high. 

Construction companies are said to have indicated another month of sharply rising employment numbers, reflecting efforts to boost capacity and meet incoming new orders. The rate of job creation is said to have moderated since May but still remained among the fastest seen over the past seven years. Moreover, the data shows sub-contractor usage increased at the steepest pace since the survey began in April 1997. 

Worryingly, around 77% of the survey panel are said to have reported longer lead times among suppliers in June. The seasonally adjusted index pointed to the worst month for supplier delays since the survey began just over 24 years ago, and construction companies are said to have overwhelmingly cited stock shortages among vendors, reflecting severe delays with shipping and haulage, especially for products sourced from the EU. In terms of building materials, panel members are said to have commented on short supply across the board, particularly cement, concrete, plaster, steel, timber and roof tiles. 

The survey shows imbalanced demand and supply resulted in rapid cost inflation across the construction sector in June. Average prices paid for products and materials are said to have increased at survey-record pace, and further adding to cost pressures in June was the steepest rise in rates charged by sub-contractors since the survey began. 

However, the survey points to construction companies remaining optimistic about growth prospects for the next 12 months, but the degree of confidence is said to have eased to its lowest since January, in part reflecting concerns about labour availability and the sustainability of the recent surge in demand. 

Commenting on the challenges of the latest data, Gareth Belsham, director of the national property consultancy and surveyors Naismiths, commented: “Demand has got so hot, and the supply chain so stretched, that increasing numbers of projects are being burnt by material cost inflation and delays.

“With waves of new orders still flooding in, Britain’s builders are scrambling to keep up – taking on more staff and ramping up their use of sub-contractors.

“But the real pinchpoint is building materials. A double-whammy of post-Brexit trade friction and the pandemic’s legacy means the industry is suffering severe shortages of key materials including cement, concrete, plaster, steel, timber and roof tiles. 

“Input costs – which include materials and labour – are rising at their fastest pace since records began nearly a quarter century ago, and delivery times have never been longer.

“The industry is riding high on a wave of demand and confidence, but there’s a danger that wave could soon break on the rocks of material shortages. Materials suppliers are desperately trying to respond by ramping up production, but as the industry accelerates into a full-on boom, the road ahead is likely to be beset with supply-side speed bumps.”

View the latest data here.

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