Slowest rise in construction output since February, but optimism remains high

housebuilding

The recovery in UK construction output lost momentum since June, with slower growth seen in all three main categories of work, according to the latest purchasing managers index compiled by IHS Markit and CIPS.

The survey revealed the slowest overall increase in construction output since February.

Survey respondents often cited difficulties keeping pace with the recent surge in demand for construction projects, especially due to raw material supply shortages and shrinking sub-contractor availability.

With demand for construction materials continuing to outstrip supply, the sector has seen another steep increase in purchasing prices.

More than three quarters of those surveyed reported a rise in their average cost burdens during July.

The headline seasonally adjusted IHS Markit/CIPS UK Construction PMI® Total Activity Index registered 58.7 in July, down sharply from June’s 24-year high of 66.3 but still well above the crucial 50.0 no-change threshold.

House building was the best-performing category in July, followed closely by commercial building. In both cases, the rate of expansion was the weakest since February. This mostly reflected stretched business capacity and growth constraints due to supply issues, but some firms noted that the post-lockdown spike in customer demand had started to wane.

Civil engineering activity followed the momentum seen elsewhere in the construction sector during July, with growth easing sharply since June and the lowest for five months.

Total order books continued to improve in July, but the latest rise in new work was the weakest since March.

Shortages of some materials had acted as a brake on purchasing volumes in July.

Around 66 per cent of the survey panel reported longer wait times for supplier deliveries in July. The resulting index signalled widespread supply chain delays, although the latest reading was up from June’s record low and the highest for three months.

Supply imbalances were amplified by a lack of transport availability, port congestion, and Brexit trade frictions. A rapid pace of input cost inflation continued in July, fuelled by supply shortages and robust demand for construction items.

Higher charges among sub-contractors and difficulties filling staff vacancies also added to price pressures. The latest decline in sub-contractor availability was the second-fastest since the survey began in 1997, exceeded only by that seen during the lockdown in April 2020.

However construction firms continue to hire staff at a strong pace, reflecting rising orders and confidence regarding the near-term outlook. While optimism toward future output growth remained historically high, the index drifted down to its lowest for six months in July