Rise in construction output leads to record high cost inflation
Construction output increased in April, but builders faced the sharpest rise in cost inflations since 1997
UK construction companies signalled a strong increase in output volumes during April, with continued recoveries seen in civil engineering activity, commercial work and housebuilding.
Workloads were boosted by the fastest rise in overall new orders since September 2014.
However, demand and supply imbalances led to input cost inflation reaching its highest rate since the survey began in April 1997.
The IHS Markit/CIPS UK Construction PMI® Index posted 61.6 in April, down only fractionally from March’s 61.7.
The index has posted in growth territory in ten of the past eleven months, with January 2021 the exception.
Commercial work was the best-performing broad category of construction output in April at 62.2, although the rate of expansion eased slightly since March. Survey respondents commented on a boost to client demand from rising business confidence and the reopening of the UK economy.
Civil engineering bucked the softer overall growth trend in April at 61.5 and signalled its fastest speed of recovery since September 2014. Construction companies cited increased levels of work on major infrastructure programmes, including contract awards from HS2 and Highways England.
While housebuilding continued to rise at a strong pace in April at 61.2, but the rate of growth eased from March’s recent peak. There were reports of robust demand for residential building projects and new housing developments.
Total new work increased for the eleventh consecutive month in April. 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.
Rapid rise in material prices hamper supply chains
Input buying also expanded at the fastest pace since September 2014. A rapid rise in demand for construction products and materials continued to stretch supply chains in April. 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 with inputs arriving from the EU.
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. Steel, timber and transportation were among the most commonly reported items up in price.
‘More work, more job opportunities and strong optimism’
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.”
‘Maintain this momentum’
Mark Robinson, group chief executive at SCAPE, said: “Despite the outlying risk posed by continued materials and skills shortages, the sustained output growth we’ve seen since January cements the construction industry’s position at the heart of the economic recovery.
“With confidence levels on the rise, it’s important that contractors maintain this momentum and use the sustained levels of investment from central government as a catalyst for positive change.
“Our recent consumer research indicates that the general public wholeheartedly endorse investment in construction projects that create social value.
“The pandemic has accelerated trends towards more conscientious, community-focused development and contractors who are most aligned to these values – particularly those supporting public sector contracts – will ultimately be best-placed to respond to this call in the months ahead.”
Joseph Daniels, CEO and founder of Etopia Group, added: “A rise is business optimism and workloads in the construction sector should translate into the creation of more jobs for the economy, but the industry’s long-term performance is still being threatened by a shortage of materials as the US’ enormous market becomes more reliant on importing steel and timber from abroad.
“While the PMI reading has surged in recent months, reversing the ill fortunes experienced throughout most of last year, inflationary price rises – caused by material shortages – could cool the sector’s hot performance and ultimately put further downward pressure on small to medium-sized housebuilders – of whom may already be experiencing cash flow problems.”