Post-lockdown growth in the construction sector fell to its slowest pace for eight months in September, according to the Purchasing Managers Index (PMI) of industry activity.
The industry was hit by “rapid cost inflation” due to “a severe lack of materials” and staff shortages. The index, compiled by IHS Markit and the Chartered Institute of Procurement & Supply (CIPS), registered 52.6 in September in comparison to the 55.2 in August, which continued a general decline since the 24-year high seen in June, of 66.3.
A reading above 50 indicates activity is expanding.
There was also a substantial drop in subcontractor availability after imbalanced demand and supply partly led to a steep rise in subcontractor charges, which were the highest since the survey began in 1997. This exacerbated the widespread labor shortages seen in the construction sector and pushed up costs.
Across the construction sector, civil engineering saw the biggest reduction in momentum, from 54.8 in August to 51.0 in September. Housebuilding also had a tough month, registering its slowest expansion since June 2020.
IHS Markit director Tim Moore said: “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.”
CIPS group director Duncan Brock said the staff and material shortages had affected project agreements, leading to a “sharp fall in new order growth, where customers hesitated to commit, uncertain about prices and the timing of completion”. He added that more than 60 percent of supply chain managers said their deliveries were taking longer, while 78 percent said they were paying more for their goods.
The sector has been hampered by material shortages since last year, with prices rocketing up as a result. The latest data by the Department for Business, Energy and Industrial Strategy, released today, revealed that key material costs across the sector were 23.5 percent higher in August than they were a year ago.
Vacancies in the construction industry also hit a new 20-year high in the three months to the end of August. Recruitment consultants told Construction News in August that the usual typical summer fall in workers had been exacerbated by the pandemic and Brexit.
Scape chief executive Mark Robinson warned the winter months are likely to be challenging for the sector, and that prompt payment and open dialogue would be key to support the supply chain. “As weather conditions inevitably slow progress, the industry will also need to negate the ongoing volatility surrounding materials and labor supply, which has been impacting the speed and cost at which projects are being delivered for some time now,” he said.
KPMG UK head of infrastructure, building, and construction Jan Crosby said: “Global supply chain delays, lorry driver shortages and the demand on fuel are causing havoc here for the UK’s construction sector, which is having to navigate these challenges alongside managing pent up pressure for builds.
“While some companies have been agile enough to handle these issues by stockpiling or widening their sourcing net, others have understandably struggled, which has led to projects being canceled or delayed. That’s why another month of slow growth is to be expected given the circumstances,” he added.
Association for Consultancy and Engineering (ACE) director of policy Matthew Farrow said rising material costs and people costs could be a “potent combination, which will hold back post-pandemic recovery in both the construction sector and the wider economy”.
TopHat Solutions managing director Andrew Shepherd said the materials crisis meant there is “an urgent need to overhaul how the industry procures and manages supply chains if the UK is going to build back better and deliver on the government's housing targets”.
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