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07 September 2021

Construction activity slows as costs continue to rise

Construction activity slowed in August, as the tight availability of materials affected the volume of work, the latest IHS Markit/CIPS Purchasing Managers’ Index shows.

The index posted a score of 55.2 in August, down from 58.7 in July. A reading above 50 indicates work levels are still increasing, but August’s reading was the lowest since February.

New work that had been delayed due to Brexit and the pandemic was started during the month, but survey respondents said clients’ confidence had been dampened by limited material availability and inflation volatility. Two-thirds of respondents said delivery times increased in August compared with July.

Hiring also slowed to its lowest level in four months, as firms struggled to meet rising labour costs.

Overall cost inflation increased in August and hit its second-highest level on record, surpassed only by the rate seen in June.

Gareth Belsham, director of property consultancy Naismiths, said the industry was “becoming a victim of its own success”.

“Soaring prices of key building materials, not to mention patchy availability and lengthy delays, have forced some construction firms to admit to clients that they simply cannot keep up with demand for building projects,” he said. Buyers reported that problems with transport and freight availability were compounding existing material delivery problems.

Civil engineering saw the slowest growth for the fourth month in a row, scoring 54.8. Commercial construction was the best-performing category, at 56, although this was the slowest rate of expansion for six months. Housebuilding recorded a rating of 55.

Despite the overall slowdown in growth and ongoing cost inflation, construction companies remained “highly upbeat” about their prospects for the coming 12 months, according to the survey. The positive sentiment was underpinned by expectations of more new work hitting the market in the months ahead.

Beard Construction finance director Fraser Johns said the current volatility made good supply chain relationships even more important. “It puts real emphasis once again on relations with supply chains – ensuring prompt payment, for example – and requires a proactive approach in terms of multi-stage procurement and working more closely with customers to keep them well informed about the situation,” he said.

“We don’t look to be turning a corner any time soon on the supply crisis, so it’s key for the industry to pull together and collaborate right through the supply chain to try to lessen the impact of these issues.”

Surveyors have forecast material prices could rise another 10 per cent over the next year.

Source: Construction News

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