Construction Rises at Softest Pace Since February

UK Construction companies have signaled another increase in output volumes during August 2021. But, this pace of growth has eased notably since the last survey period.

This is due to softer expansions in housebuilding, commercial work and civil engineering activity, as well as in new order growth. Companies have noted that sustained, and severe, supply chain disruption in August contributed to an accelerated rise in input prices, one which was the second sharpest in the history of this survey.

The headline seasonally adjusted IHS Markit/CIPS UK Construction PMI® Total Activity Index posted 55.2 in August, down from 58.7 in July, indicating activity has expanded in each of the last seven months.

However, the rate of increase also eased to the softest since February 2021, as restricted supply of materials, as well as transport, began to weigh on overall construction activity. Commercial work (index at 56.0) was the best performing broad category of construction output in August, though the rate of expansion eased to the slowest for six months. This was followed closely by housebuilding (55.0), while civil engineering remained the slowest growing subsector (54.8) for the fourth month in a row.

Total new work also increased for the 15 consecutive month in a row in August 2021. While the latest improvement in order books marked overall, the rate of growth has softened to the weakest since March 2021. With businesses noting a continued resumption of projects which have been delayed to the ongoing COVID-19 pandemic, as well as Brexit.

Amid softer growth in new orders, the rate of job creation eased to a four-month low in the latest survey period. Firms continued to note that strong market conditions had sustained demand for new employees, though additional cost burdens and a lack of skilled workers began to weigh on the rate of hiring

Looking ahead, construction companies remained highly upbeat about their growth prospects over the coming 12 months. Positive sentiment was underpinned by hopes of an expected rise in new contract awards across all subsectors of construction.

Usamah Bhatti, Economist at IHS Markit, which compiles the survey said: “Evidence that the UK construction sector began to feel the impact of ongoing supply chain disruption was widespread midway through the third quarter of 2021. Growth rates for overall activity as well as the three monitored subsectors eased further from the recent highs earlier in the summer. Similarly, new business inflows have continued to increase at a marked pace, yet even here the rate of growth has eased to a five-month low.

“Supply chain disruption continued to disrupt activity across the UK construction sector, as demand for materials and logistics capacity outstripped supply. Average vendor performance continued to deteriorate at a near-survey record rate, as firms noted severe shortages of building materials, a lack of available transport capacity and long wait times for items from abroad due to port congestion.

“As a result, the rate of input cost inflation faced by construction companies accelerated to the second-fastest on record, while the increase in subcontractor rates hit a fresh series high, fuelled by supply shortfalls in the sector. Despite this, businesses noted a stronger degree of optimism regarding the year-ahead outlook, as more than half of survey respondents predicted a rise in activity. This was underpinned by expectations that new contracts would be brought to tender across the construction sector as markets continued to recover from the economic disruption caused by the pandemic.”

Gareth Belsham, director of the national property consultancy and surveyors Naismiths, commented: “The construction industry is fast becoming a victim of its own success. The supply chain problems are no longer just project speed bumps; they’re applying the brakes to new orders as well.

“Soaring prices of key building materials, not to mention patchy availability and lengthy delays, have forced some construction firms to admit to clients that they simply cannot keep up with demand for building projects.

“With steel, timber and fuel costs all mushrooming, contractors are seeing their margins eaten away. The pipeline of new work is still healthy by historical standards, but orders are now coming in at the slowest rate since March.

“But despite a growing sense that the post-lockdown boom may have peaked, the mood in the industry remains overwhelmingly upbeat. More than half of the builders surveyed for the PMI predict a further increase in activity over the coming year.

“Cool heads in the industry have seen this all before, and experienced developers and builders are recalibrating prices and schedules and getting on with it.

“But there is still the nagging question about the painfully high levels of material cost inflation; is it a blip, or will it start to impact not just the delivery of projects, but demand as well?”

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