Tuesday 6 July 2021 10:10 am

UK construction output growth surges to two decade high

UK construction output growth reached its highest level for over two decades, according to a closely watched business survey released today.

The latest IHS Markit/CIPS UK construction PMI for June was 66.3, up from 64.2 in May, the strongest rate of output growth for exactly 24 years.

Sharp rises in business activity across the three main sectors of the construction industry drove the over two-decade high expansion.

Read more: UK services sector continues recovery amid mounting inflation fears

Housebuilding was the strongest sector, reaching 68.2 in June, the fastest pace of growth since November 2003.

Strong demand in the UK housing market and record price rises is likely to have prompted housebuilders to begin new projects.

Commercial work recorded a reading of 66.9, notching another long-term high – output growth was the strongest since March 1998.

Civil engineering activity rose sharply in June (60.7), but the speed of growth eased to a three-month low.

Total new orders across the construction industry have now increased for 13 successive months, although the latest expansion was slower than May’s survey-record high.

Tim Moore, economics director at IHS Markit, says: “June data signalled another rapid increase in UK construction output as housing, commercial and civil engineering activity all expanded at a brisk pace.”

Read more: PMI: Eurozone business activity grows at fastest pace for 15 years

“The headline index signalled the fastest rise in business activity across the construction sector for 24 years. Total new orders expanded at one of the strongest rates since the summer of 2007, mostly reflecting robust demand for residential projects and a boost to commercial work from the reopening UK economy.”

Strong demand in the industry prompted constructors to rapidly scale staffing levels to boost production capacity in order to cope with swelling backlogs of work.

The rate of job creation moderated since May but remained among the fastest seen over the past seven years.

Input inflation climbs at record pace

Despite the strong growth in output, prices for raw materials rose at their fastest pace on record, caused by severe supply and demand imbalances.

Average prices paid for products and materials increased at a survey-record pace, caused by firms competing with each other to secure key inputs amid severe shortages, IHS Markit said.

Widespread scarcity of essential products resulted in a slowing down of completion times as construction firms had to deal with poor availability of construction components.

The survey recorded its worse month for supplier delays since the it began just over 24 years ago, and over 77 per cent of constructors reported longer lead times among suppliers.

“Supply chains once again struggled to keep up with demand for construction products and materials, with lead times lengthening to the greatest extent since the survey began in April 1997” Moore said.

Read more: Eurozone construction activity continues rebound from Covid lows

“Escalating cost pressures and concerns about labour availability appear to have constrained business optimism at some building firms.”

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “A wave of new orders overwhelmed supply chains again this month where stock levels could not keep up with building work accelerating at the fastest rate since June 1997.”

“The meagre availability of raw materials placed obstacles in the path of stronger workflows where supplier delivery times extended into record-breaking territory once again and surpassed the height of disruption when the pandemic first hit.”

Concerns about intense inflationary pressures among producers is fuelling concerns that firms may start passing on higher costs to consumers.

Latest data from the ONS shows annual UK inflation is already running higher than the Bank of England’s target, reaching 2.1 per cent last month.

Read more: UK inflation jumps to 2.1 per cent in May as clothing and fuel prices rise

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