Severe supply chain pressures restrain purchasing activity and building projects in August, as 68% of construction companies reported even longer delivery times for materials compared to July

UK construction companies signalled a further rise in output volumes during August, however the pace of growth eased notably from the previous survey period, according to the latest IHS Markit/CIPS UK Construction PMI® Total Activity Index.

There were softer expansions across housebuilding, commercial work and civil engineering activity, as well as in new order growth.

Construction companies widely noted sustained, and severe, supply chain disruption in August, which contributed to an accelerated rise in input prices, and one that was the second sharpest in the history of the survey.

The figures

The PMI posted 55.2 in August, down from 58.7 in July, indicating activity has expanded in each of the last seven months. That said, the rate of increase eased to the softest pace since February as restricted supply of materials and 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 improved for the fifteenth consecutive month in August. While the latest increase in order books was marked overall, the rate of growth softened to the weakest since March.

Construction companies noted a continued resumption of projects that had been delayed due to Brexit and the Covid-19 pandemic, though client confidence was dampened by volatility in raw material supplies and increased cost burdens.

Amid softer growth in new orders, the rate of job creation eased to a four-month low in the latest survey period.

Input buying expanded at the slowest pace since January. Strong rises in demand for construction materials continued to stretch supply chains, as some firms noted the difficulty in sourcing and receiving purchased inputs.

As a result, input cost inflation accelerated to the second-fastest rate in the 24-year history of the survey, surpassed only by the record rise two months prior. Among those materials reported as up in price, the most common were concrete, fuel steel and timber.

Looking ahead, construction companies remained highly upbeat about their growth prospects over the coming 12 months.

‘Material and staff costs through the roof’

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “Formidable supply chain pressures restrained purchasing activity and building projects across the board in August as 68% of construction companies reported even longer delivery times for materials compared to July.

“A combination of ongoing covid restrictions, Brexit delays and shipping hold-ups were responsible as builders were unable to complete some of the pipelines of work knocking on their door.

“Material and staff costs went through the roof as job hiring accelerated to fill the gaps in capacity left behind by employee moves, overseas worker availability and brought on by skills shortages.

“These obstacles to construction’s progress are set to continue and are now affecting last year’s strongest performer – housebuilding, which will exacerbate the problem of housing supply.

“However, optimism improved on last month as more than half of building firms believe that output will continue to rise in the year ahead.”

‘Harsh reality of materials and labour shortages’

Mark Robinson, group chief executive at SCAPE, commented: “Continued output growth in August is testament to the resilience of contractors across the supply chain and their commitment to driving the ongoing economic recovery.

“However, across the country, the harsh reality of materials and labour shortages is threatening to derail the speed at which projects can be delivered.

“The construction industry has never been afraid to tackle challenges head on and managing the short-term risk caused by inflation must remain the priority if we are to stay true to the ‘build back better’ mantra. To do this, greater collaboration between clients, contractors and their supply chains is vital to help alleviate any mid-project issues that might arise and ensure that an accountable and healthy environment is created from outset. This also includes holding large contractors to fair payment practices to boost cashflow for SMEs and lessen the pressure on smaller suppliers.”


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