UK construction sector rocked by shortages

Max Black
October 6, 2021
(IFA Magazine)

 

The UK construction sector’s recovery stalled last month, a closely-watched survey showed on Wednesday, as higher prices, staff shortages and supply chain disruptions hit home.
The IHS Markit CIPS UK Construction PMI total activity index came in a 52.6 in September, down on August’s 55.2 and a further decline on June’s 24-year high of 66.3.

It was also below consensus, with most analysts expecting 54.0, and the lowest reading since January.

All three categories reported a loss of momentum. The biggest slowdown was seen in civil engineering, which fell to 51.0 from 54.8 a month previously. Housebuilding was 52.8, down on August’s 55.0 and the weakest expansion since June 2020. Commercial was the best performing segment, at 53.6, though that was still down August’s 56.0.

Respondents attributed the slowdown to supply chain issues, a “severe” lack of materials, ongoing staff shortages and softer demand following the summer peak.

Output volumes rose by the smallest among in eight months, while the rise in sub-contractor charges was the steepest since the survey began in April 1997.

Purchase prices also increased rapidly, with around 78% of respondents reporting a rise in costs.

Tim Moore, director at IHS Markit, said: “The volatile price and supply environment has started to hinder new business intakes as construction companies revised cost projections and some clients delayed decisions on contract awards.

“As a result, the latest survey data pointed to the worst month for order books since January’s lockdown.”

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: “Unless stronger supply chain performance is nailed down along with headcount, we are heading towards a stagnant autumn because the sector is certainly not on an even footing at the moment.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The construction sector’s recovery has stalled, with output well short of its pre-Covid level.

“Looking ahead, staff availability should improve significantly this month, now that the furlough scheme has ended. In addition, demand for civil engineering projects likely will rise, given that public sector gross investment is set to increase by 6.1% year-over-year in the upcoming fiscal year starting in April.

“Nonetheless, commercial property vacancies likely will increase as government support for tenants of commercial buildings rolls off next year, and as firms implement flexible working plans to cut costs. What’s more, mortgage affordability will deteriorate significantly if the Monetary Policy Committee raises bank rate as quickly as markets expect next year. Accordingly, we expect construction output next year to merely match its January 2020 level.”

The survey was carried out between 13 and 29 September. The questionnaire was sent to a panel of around 150 construction companies.

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