Construction growth slows as industry hit by rapid cost inflation


Construction growth slowed in September, as a ‘perfect storm’ continues to hamper availability of materials and labour across the UK

September PMI data revealed another growth slowdown in the construction sector, with output volumes rising to the smallest extent for eight months.

At 52.6 in September, down from 55.2 in August, the headline seasonally adjusted IHS Markit/CIPS UK Construction PMI® Total Activity Index dropped further below the 24-year high seen in June (66.3).

The latest reading signalled only a moderate expansion of total construction output and the weakest speed of recovery for eight months.

Figure breakdown

All three broad categories of construction activity saw a loss of momentum in September, with the biggest slowdown seen in civil engineering (51.0, down from 54.8 in August).

Housebuilding also decelerated in September, with the latest expansion the weakest since the recovery began in June 2020 (52.8). This left the commercial segment (53.6) as the best-performing category during September.

Construction companies recorded a moderate increase in new work during September, with the rate of growth easing sharply to its weakest since the start of 2021.

September data indicated another strong rise in employment numbers across the construction sector, driven by greater workloads and stretched business capacity. However, the latest rise in staffing levels was the least marked since April, which partly reflected long wait times to fill vacancies.

A lack of sub-contractor availability added to the squeeze on labour supply in September.

Purchase prices increased rapidly in September, although the rate of inflation eased further from June’s all-time peak. Around 78% of the survey panel reported a rise in their cost burdens, which was mostly linked to supply shortages and transport surcharges.

Meanwhile, the latest survey illustrated that construction firms remained highly upbeat about the business outlook. Just over half (51%) forecast rising output, while only 8% anticipate a decline. However, the degree of confidence was weaker than August amid some concerns that the supply chain crisis will hinder growth.

‘Supply vs demand worries aren’t going away quickly’

Jan Crosby, head of infrastructure, building and construction at KPMG UK, said: “A perfect storm continues to hamper availability of materials and labour across the sector in the UK.

“The scale of HS2 is acting as a magnet for certain elements of the supply chain, including heavy equipment and cement; the global demand for steel and timber is pushing up prices and lead times for most goods can take much longer than normal.

“Additionally, labour in the south has been impacted by Brexit and HGV drivers are in high demand.

“The good news is that demand remains high across most markets – particularly residential and infrastructure. Rising end prices for houses and real estate are often fully mitigating the impact of the cost increases – at least in the private sector.

“However, availability will act as a break on how much the industry can respond to the high demand.

“This month has again seen slow growth for the sector. The ongoing lorry driver shortages and lack of stock mean these supply vs demand worries aren’t going away quickly.”

‘The figures have not substantively improved’

Matthew Farrow, director of policy at the Association for Consultancy and Engineering (ACE), commented: “Autumn is here and the figures have not substantively improved. As in many other sectors we are facing the spectre of rising people costs as well as delays and inflationary pressures on materials. This is a potent combination which will hold back post-pandemic recovery in both the construction sector and the wider economy.

“Despite these challenges, the fact that respondents remain largely upbeat with a positive business outlook is good news.

“It remains to be seen whether this withstands the next few months of 2021 which are unlikely to see any substantial change in the circumstances we are working in.”


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