Construction output expands at fastest pace since June 1997

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Construction output, housebuilding

Construction activity expanded at the fastest rate since 1997 in June, largely thanks to a sharp rise in new orders, according to the latest PMI data

Severe shortages of construction products and materials resulted in a survey record rise in purchasing prices in June.

Sharp increases in business activity were seen across all three main areas of the construction sector monitored by the survey.

Construction work in the housebuilding sub-category (index at 68.2) increased at the fastest pace since November 2003. 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. 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.

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.

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. Adding to cost pressures in June was the steepest rise in rates charged by sub-contractors since the survey began. 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.

Struggling to keep up with demand

Tim Moore, economics director at IHS Markit, said: “June data signalled another rapid increase in UK construction output as housing, commercial and civil engineering activity all expanded at a brisk pace.

“The headline index signalled the fastest rise in business activity across the construction sector for 24 years.

“Supply chains once again struggled to keep up with demand for construction products and materials, with lead times lengthening to the greatest extent since the survey began in April 1997.”

Mark Robinson, group chief executive at SCAPE, commented: “The pace of growth in the construction sector shows no sign of slowing and it is a far cry from the historic low-levels recorded at the height of the pandemic. However, ongoing concerns over access to materials and skilled workers is driving up input costs and delaying some projects.

“While material shortages may pass, the skills and labour shortage is a long-term challenge which has only been amplified by the pandemic.”

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