Strong increase in construction output but costs rise at fastest pace since survey began in 1997

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There was a strong increase in output across the UK construction sector last month, according to the latest HS Markit/CIPS UK index.

The sector saw continued recoveries in civil engineering activity, commercial work and house building. Workloads were boosted by the fastest rise in overall new orders since September 2014.

But on a less positive note, demand and supply imbalances meant that cost have risen at their fastest pace since the survey began in April 1997.

The headline IHS Markit/CIPS UK Construction PMI® Total Activity Index posted 61.6 in April, down only fractionally from March’s six-and-a-half year peak of 61.7. Any figure above 50.0 indicates an overall expansion of construction output.

The index has posted in growth territory in ten of the past eleven months, with January 2021 the exception. Commercial work was the best-performing broad category of construction output in April, although the rate of expansion eased slightly since March.

Survey respondents widely commented on a boost thanks to rising business confidence and the reopening of the UK economy.

Mike Hedges, director at Oxford and Swindon based construction company Beard, said: “Client confidence in the market is growing and this increased optimism was reflected with the surge in new orders in April. Throughout the pandemic there has been understandable hesitancy from clients as they wait to see the direction we head in, however with light appearing at the end of the tunnel, clients are now ready to hit the green button.

“Positivity in the sector resulted in the fastest rise in overall new orders since September 2014. However, a key challenge for the industry is material shortages and delays in supply. These current delays are best navigated and planned for in new projects on a collaborative basis, leading to a very positive outlook for the construction sector overall. Client confidence appears to have returned, and as we head into the summer months, sunnier skies appear ahead.”

Civil engineering signalled its fastest speed of recovery since September 2014. Construction companies often cited increased levels of work on major infrastructure programmes, including contract awards from HS2 and Highways England.

Meanwhile, house building continued to rise last month, but the rate of growth eased from March’s recent peak. There were widespread reports of robust demand for residential building projects and new housing developments. Total new work increased for the eleventh consecutive month in April.

The latest improvement in order books was the strongest for just over six-and-a-half years. This contributed to the steepest rate of job creation across the construction sector since December 2015, but a rapid rise in demand for construction products and materials continued to stretch supply chains in April.

The latest lengthening of suppliers’ delivery times was the third-greatest since the survey began in 1997, exceeded only by those seen during the lockdown in April and May last year. Construction firms mostly cited demand and supply imbalances, but some suggested that Brexit issues had led to delays with inputs arriving from the EU.

Higher prices paid for a wide range of construction items contributed to the fastest overall rate of cost inflation since the survey began in April 1997. Steel, timber and transportation were among the most commonly reported items up in price. Looking ahead, construction companies remained highly upbeat about their growth prospects in April. More than half of the survey panel (57%) expect a rise in business activity during the next 12 months, while only 7% forecast a decline.