The recovery in UK construction output gained further momentum during June, according to the latest PMI data, with overall activity expanding at the fastest pace since June 1997, supported by another sharp rise in new orders.
Suppliers’ delivery times lengthened to the greatest extent since the survey began just over 24 years ago, surpassing the previous record seen in April 2020. Severe shortages of construction products and materials resulted in a survey record rise in purchasing prices in June.
At 66.3 in June, up from 64.2 in May, the seasonally adjusted IHS Markit/CIPS UK Construction PMI Total Activity Index signalled the strongest rate of output growth for exactly 24 years. Sharp increases in business activity were seen across all three main areas of the construction sector monitored by the survey.
Construction work in the house building sub-category (index at 68.2) increased at the fastest pace since November 2003. Whereas the second-best performing area was commercial work (66.9), with output rising at the strongest rate since March 1998. Meanwhile, civil engineering activity rose sharply in June (60.7), but the speed of growth eased to a three-month low.
What’s more, survey respondents 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.
Total new orders have increased in each of the past 13 months, although the latest expansion was slower than May’s survey-record high.
Construction companies indicated another month of sharply rising employment numbers, reflecting efforts to boost capacity and meet incoming new orders. The rate of job creation moderated since May but remained among the fastest seen over the past seven years. Moreover, sub-contractor usage increased at the steepest pace since the survey began in April 1997.
Around 77% of the survey panel reported longer lead times among suppliers in June. The seasonally adjusted index pointed to the worse month for supplier delays since the survey began just over 24 years ago. Construction companies 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 commented on short supply across the board, particularly cement, concrete, plaster, steel, timber and roof tiles.
Imbalanced demand and supply resulted in rapid cost inflation across the construction sector in June. Average prices paid for products and materials increased at survey-record pace. However, the steepest rise in rates charged by sub-contractors since the survey began also added cost pressures in June.
Construction companies remain optimistic about growth prospects for the next 12 months. That said, the degree of confidence eased to its lowest since January, in part reflecting concerns about labour availability and the sustainability of the recent surge in demand.
Industry responses…
Commenting on the date, Kate Kirby, partner in the construction and infrastructure team at DWF, said: “Output growth in the construction sector has soared to a 24-year high with a rise in new orders helping the UK building sector to get back on track and kick start commercial projects that were previously on ice. The house building industry remains the jewel in the construction sector’s crown, with growth spurred on by the stamp duty exemption that has seen intense demand from home buyers this year.
“The buoyancy across the whole sector seems to be contagious and with pandemic measures now relaxing and the economy reopening, it’s pleasing to see the UK construction industry bouncing back so strongly.
“However, we need to keep a close watch on the factors that could destabilise this optimism. There has been increasing concern from those operating in the industry that materials shortages and rising costs could progressively impact the future success of the sector. The data today shows delivery times and prices are at all-time highs. But this doesn’t seem to be impacting on progress just yet.”
Meanwhile, Brian Berry, chief executive of the Federation of Master Builders (FMB), said: “The building materials shortage is disproportionately affecting small builders and threatening their recovery from the pandemic despite strong growth in the construction sector. The materials shortage is proving a serious detriment to both businesses throughout the supply chain and consumers. As the country reopens for business, it’s imperative that building firms have better access to the materials they need to build.”
He concluded: “It’s very encouraging that activity in the construction sector is increasing at its fastest rate in over twenty years, but given that confidence is rapidly dropping away, the lack of materials needs addressing before jobs and business continuity start to be compromised. Small firms form over 90% of the construction industry, and they are experiencing the most difficulties as a result of these shortages.”
