Supply disruption and rising prices hit UK construction growth

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EMBARGOED TO 0001 MONDAY MARCH 29 File photo dated 28/02/12 of a construction site. A UK construction company says it has become the first firm in the sector to complete a pioneering trial of flexible working on its sites. BAM Construct UK announced it has now introduced new flexible working policies it believes could benefit the whole construction industry. Issue date: Monday March 29, 2021.
Markit's construction PMI survey registered the second sharpest rise in price acceleration in the history of the survey, compounding inflation fears. Photo: Getty

Growth softened in the UK's housebuilding and construction sector in August as sustained and severe supply chain disruption contributed to an accelerated rise in input prices. 

Markit's construction PMI survey registered the second sharpest rise in price acceleration in the history of the survey, compounding inflation fears. 

The headline seasonally adjusted IHS Markit/CIPS UK Construction PMI® Total Activity Index posted 55.2 in August, down from 58.7 in July, indicating activity has expanded in each of the last seven months. 

"Such a slowdown isn’t alarming, given that the construction sector has been one of the first to recover fully to pre-COVID levels of activity. But it is difficult to see construction activity rising much further in the near term," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics. 

The rate of increase eased to the softest since February as restricted supply of materials and transport began to weigh on overall construction activity.

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"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," said Duncan Brock, group director at the Chartered Institute of Procurement & Supply.

"Paying higher wages for experienced staff along with low stocks of materials at suppliers meant inflationary pressure rose at a rate almost on a par with June’s survey record. 84% of supply chain managers reported paying more for their purchases."

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.

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Total new work increased for the fifteenth consecutive month in August. While the latest improvement in order books was marked overall, the rate of growth softened to the weakest since March. 

Businesses 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. Firms continued to note that strong market conditions had sustained demand for new employees, though additional cost burdens and a lack of skilled workers began to weigh on the rate of hiring.

Looking ahead, construction companies remain highly upbeat about their growth prospects over the coming 12 months, Markit said. Positive sentiment was underpinned by hopes of an expected rise in new contract awards across all subsectors of construction.

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