Existing supply chain disruption intensified by Russia’s invasion of Ukraine has eroded confidence in the UK construction sector to its lowest level in around a year and a half, reveals a closely watched survey released today.
Swelling raw material costs, elongating delays in sourcing components and higher staffing bills all compounded to spike optimism among British building firms last month, according to S&P Global’s latest purchasing managers’ index (PMI).
The Kremlin decision to send troops into Ukraine has disrupted supplies of raw materials reaching Britain and the Continent, making it harder for construction firms to progress projects.
Greater uncertainty over the trajectory of the UK economy and historic high inflation is raising concern within the construction industry that customers will cut back on spending.
“Intense inflationary pressures appear to have unnerved some construction companies. Business optimism slipped to its lowest since October 2020 on concerns that clients will cut back spending in response to rising prices and heightened economic uncertainty,” Tim Moore, economics director at S&P Global, said.
Shortages of raw materials have also driven up prices for items such as copper and nickel, crucial components used in building projects, strengthening incentives for firms to delay work or hike prices.
Oil and gas prices have soared since the start of the war.
“Imbalanced supply and demand, alongside escalating energy, fuel and commodity prices, resulted in a rapid rise in average cost burdens in March,” S&P Global said.
Despite the sharp decrease in confidence and swelling costs, activity in the construction sector is holding up well, driven by resilient consumer demand.
The March PMI came in at 59.1, unchanged from February and the joint fastest rate of growth since June 2021.
A reading above 50 indicates most firms reported growth.
New orders for construction projects climbed at the fastest pace since August 2021.
However, the activity in the housing sector, which has been a boon for construction firms as a result of demand being stoked by a stamp duty holiday and ultra-low interest rates, cooled, S&P Global said.