Construction activity growth at 24-year high but firms face supply shortages

The UK construction sector saw activity surge last month at the fastest pace for 24 years after another sharp rise in new orders for firms.

However, firms said that record demand for products and materials resulted in “severe shortages” and soaring inflation.

The closely followed IHS Markit/CIPS purchasing managers’ index (PMI) hit 66.3 in June, increasing from 64.2 in May.

Any reading above 50 is seen as a sector in growth.

The report said that the surge in output was particularly driven by the housebuilding sector, which posted a 68.2 reading for the month.

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

“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.”

Survey respondents highlighted a “rapid turnaround in demand for new construction work” which residential and commercial projects accelerated following the reopening of the UK economy.

Total new orders have now increased for each of the past 13 months.

Firms surveyed said that this surge in orders and Brexit-related concerns have weighed heavily on their supply chains and caused supplier delivery times to lengthen.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (Cips), 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.

“A lack of delivery drivers and logistics difficulties for EU imports left stock undelivered or unavailable and construction companies waited while costs mounted.

“Construction’s heavy load remains inflation rising to its highest rate since April 1997 as a staggering 86% of respondents reported paying more for their goods in June.”

Max Jones, director in Lloyds Bank’s infrastructure and construction team, said: “Contractors hope that the start of summer will see the sun shining on their fortunes, but they’re also mindful of the risks of being burned.

“Pent-up demand for work on commercial projects in major cities, infrastructure in the regions and housing developments across the country threaten a battle for materials that many report are in short supply.

“This will create pinch points and potentially push up prices, eroding margins.”