Pressures dampen optimism

The recovery in UK construction output lost momentum since June, with slower growth seen in all three main categories of work.

Difficulties keeping pace with the recent surge in demand for construction projects, especially due to raw material supply shortages and shrinking sub-contractor availability, were seen as key stumbling blocks.

With demand for construction materials continuing to outstrip supply, latest data compiled by IHS Markit and CIPS signalled another steep increase in purchasing prices; around 81% of the survey panel reported a rise in their average cost burdens during July, while only 1% signalled a decline.

The headline seasonally adjusted IHS Markit/CIPS UK Construction PMI Total Activity Index registered 58.7 in July, down sharply from June’s 24-year high of 66.3 but still well above the 50.0 no-change threshold. The latest reading signalled the slowest overall increase in construction output since February.

House building was the best-performing category in July, followed closely by commercial building. In both cases, the rate of expansion was the weakest since February. This mostly reflected stretched business capacity and growth constraints due to supply issues, but some firms noted that the post-lockdown spike in customer demand had started to wane.

Survey respondents noted that supply imbalances were amplified by a lack of transport availability, port congestion, and Brexit trade frictions.

A rapid pace of input cost inflation continued in July, fuelled by supply shortages and robust demand for construction items. Higher charges among sub-contractors and difficulties filling staff vacancies also added to price pressures. The latest decline in sub-contractor availability was the second-fastest since the survey began in 1997, exceeded only by that seen during the lockdown in April 2020.

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: “Faced with transport disruptions, shortages of essentials and Brexit delays, the initial spurt of activity this year is fast hitting the rocks. Building optimism was dampened to the lowest since January as it is difficult to foresee when all these challenges are likely to subside.”