UK construction output growth hits 24-year high but material concerns intensify


UK construction output growth hit a 24-year high in June, according to the latest IHS Markit/CIPS PMI figures.

However, suppliers’ delivery times increased to the greatest extent since the survey began, while ‘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 since June 1997. Housebuilding and commercial work were the two best performing areas.

Kate Kirby, partner in the construction & infrastructure team at legal firm DWF, said, “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.”

Fraser Johns, finance director at Beard, described the PMI report as a ‘tale of two parts’. He added, “In June we saw activity grow at the fastest pace since 1997, led by a wave of new orders which have increased month-on-month. However, at the same time delays in the supply chain were at their worst for 24 years, and prices soared at the fastest rate since the survey began. The well-reported materials shortages are really starting to bite at sites across the UK where contractors are waiting for supplies, while watching prices rise. It is little wonder that confidence in the sector has slumped back to levels last seen in January.

“Given the pressure from the increase in new orders, which is what we all wanted to see following the decline last year, there is a real danger of the sector overheating. With the summer holidays expected to see labour shortages as foreign workers head home for the first time in months, this situation is likely to get worse before it gets better. As such, it’s vital for the sector to take a more proactive and collaborative approach with customers and supply chains, to try to mitigate against the risk of delays impacting projects onsite.”

Matthew Farrow, director of policy for the Association for Consultancy and Engineering (ACE), commented, “The figures reflect growing confidence in the UK economy and the construction industry which is, of course, welcome. However, it is clear that the severe shortage of products and materials, as well as issues around transportation, are now having an adverse effect on lead times and putting inflationary pressure on prices.

“There is no easy fix to this problem, other than medium to long-term changes in our approach – I would hope that this leads to smarter design through the use of alternative materials, which could also have the added benefit of creating less carbon intensive buildings and structures and accelerating our path to net zero.”

The Federation of Master Builders (FMB) said the rise in activity risks being ‘undermined’ by price increases and a shortage of building materials.  Brian Berry, chief executive of the 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.

“It’s very encouraging that activity in the construction sector is increasing at its fastest rate in over 20 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.”