Construction News

Sat June 19 2021

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Price pressures mount as construction orders boom

7 May Latest survey of construction purchasers reveals continued strong growth but inflation hitting new heights.

HS2 is helping to keep civil engineering contractors busy. This is the Long Itchington Wood Tunnel site.
HS2 is helping to keep civil engineering contractors busy. This is the Long Itchington Wood Tunnel site.

Recovery continued across the UK construction industry in April with civil engineering activity, commercial work and house-building all on the rise, the monthly purchasing managers’ survey suggests.

Workloads were boosted by the fastest rise in overall new orders since September 2014. But demand and supply imbalances meant that the rate of input cost inflation picked up for the seventh month in a row, reaching its highest since the survey began in April 1997.

The headline IHS Markit/CIPS UK Construction PMI Total Activity Index posted a score of 61.6 in April, down only fractionally from March's six-and-a-half year peak of 61.7.

Any figure above 50.0 indicates an overall expansion of construction output. The index has posted in growth territory in 10 of the past 11 months, with January 2021 the exception. Any score over 60 indicates exceptionally strong growth.

Commercial work (scoring 62.2) was marginally the fastest growing sector in April, although the rate of expansion eased slightly since March. Survey respondents widely commented on a boost to client demand from rising business confidence and the reopening of the UK economy.

Civil engineering (61.5) bucked the softer overall growth trend in April and signalled its fastest speed of recovery since September 2014. Work from HS2 and Highways England was regularly cited.

Meanwhile, house-building activity (61.2) continued to grow strongly in April but the rate of growth eased from March's recent peak (64.0). There were widespread reports of robust demand for residential building projects and new housing developments.

Total new work increased for the 11th consecutive month in April, while the latest improvement in order books was the strongest for just over six-and-a-half years. This contributed to the steepest rate of job creation across the construction sector since December 2015.

Mirroring the trend for new business, input buying expanded at the fastest pace since September 2014. A rapid rise in demand for construction products and materials continues to stretch supply chains. The latest lengthening of suppliers' delivery times was the third-greatest since the survey began in 1997, exceeded only by those seen during the lockdown in April and May last year. Construction firms mostly cited demand and supply imbalances, but some suggested that Brexit issues had led to delays from the European mainland.

Higher prices paid for a wide range of construction items contributed to the fastest overall rate of cost inflation since the survey began in April 1997 (index at 84.6, up from 77.8 in March). Steel, timber and transportation were among the most commonly reported goods and services to have risen in price.

Looking ahead, construction companies remained highly upbeat about their growth prospects in April, the survey authors said. More than half of the survey panel (57%) expect a rise in business activity during the next 12 months, while only 7% forecast a decline.

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Tim Moore, economics director at IHS Markit, which compiles the survey, said: "The UK construction sector is experiencing its strongest growth phase for six-and-a-half years, with the recovery now evenly balanced across the house building, commercial and civil engineering categories.

"New orders surged higher in April as the end of lockdown spurred contract awards on previously delayed commercial development projects. This added to the spike in workloads from robust housing demand and the delivery of major infrastructure programmes such as HS2.

"Shortages of construction materials and much longer wait times for deliveries from suppliers were a sting in the tail for the sector. Aggregates, timber, steel, cement and concrete products were all widely reported as in short supply by survey respondents.

"Supply and demand imbalances for construction items, alongside higher transport costs, resulted in severe price pressures across the board during April. The overall rate of input cost inflation reached its fastest since data collection began 24 years ago, exceeding the previous record seen at the top of the global commodity price cycle in 2008."

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "The building blocks were in place in April as builders confirmed more work, more job opportunities and strong optimism for the next 12 months.

"The overall growth rate of new business strengthened to the fastest since September 2014 as all three sectors improved and civil engineering the laggard of last year gained the most momentum.

"Issues around supply chain performance acted as a drag on capacity however as supply constraints on essential materials increased to one of the third highest levels since 1997 when the survey began. Brexit issues remained a factor affecting deliveries from the EU and suppliers generally were struggling to meet the sudden rush in demand leading to shortages of basic materials.

"This inevitably led to the sharpest rise in cost inflation in a generation as builders scrambled to catch up on projects but the biggest rise in job creation since December 2015 also followed, signalling sustainable growth in the sector this summer."

Mike Hedges, director at construction contractor Beard, said: “Client confidence in the market is growing and this increased optimism was reflected with the surge in new orders in April. Throughout the pandemic there has been understandable hesitancy from clients as they wait to see the direction we head in, however with light appearing at the end of the tunnel, clients are now ready to hit the green button.

“Positivity in the sector resulted in the fastest rise in overall new orders since September 2014. However, a key challenge for the industry is material shortages and delays in supply. These current delays are best navigated and planned for in new projects on a collaborative basis, leading to a very positive outlook for the construction sector overall. Client confidence appears to have returned, and as we head into the summer months, sunnier skies appear ahead.” 

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