Boost in new orders keeps construction on strong recovery path

The latest IHS Markit/CIPS UK Construction PMI has reported a rapid rise in new business volumes continued during May as output growth accelerates to its strongest since September 2014. However, concerns grow as cost inflation hits fresh survey-record high.

May PMI data indicated that the UK construction sector remained on a strong recovery path, with output growth reaching its strongest since September 2014. Moreover, new order volumes increased at the fastest pace since the survey began just over 24 years ago.

Input cost inflation was also at a survey-record high during May, reflecting a surge in demand for construction materials and severe supply shortages.

At 64.2 in May, up from 61.6 in April, the seasonally adjusted IHS Markit/CIPS UK Construction PMI® Total Activity Index registered above the 50.0 no-change value for the fourth consecutive month and signalled the strongest rate of output growth for just under seven years.

Tim Moore, Economics Director at IHS Markit, said: “UK construction companies reported another month of rapid output growth amid a surge in residential work and the fastest rise in commercial building since August 2007. Total new orders increased at the strongest rate since the survey began more than two decades ago, but supply chains once again struggled to keep pace with the rebound in demand.

“There were widespread reports citing shortages of construction materials and wait times from suppliers lengthened considerably in comparison to those seen during April. Imbalanced supply and demand led to survey- record increases in both purchasing prices and rates charged by sub-contractors.

“Despite severe challenges with materials availability, construction firms remain highly upbeat about their near- term growth prospects. Nearly two-thirds of the survey panel forecast an increase in output during the year ahead, while only one-in-thirteen forecast a decline.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply said: “The construction sector continued its expansion programme with a phenomenal acceleration in growth and the strongest for seven years as new orders filled in at the fastest rate for almost a quarter of a century.

“Residential work was back in the top spot as house building rose at the quickest pace since August 2014, serving as an antidote to the recent scarcity in housing for lets or buy, and driven by consumer demand and a boost from the stamp duty holiday.

“Busy purchasing managers were under pressure to keep up and buying up at the fastest rate since April 1997, changing sourcing strategies to find depleting essential materials and stocking up just as supply chain problems continued to mount along with prices. With inflation for goods and raw materials at a 24-year high, companies will be concerned that much-needed profits will be eaten away as building projects take shape and could be held up by some of the longest delivery times on record.

“Skills shortages are also becoming a problem, with recruiters finding talented labour hard to find, as job creation was at robust levels and the threat of staffing cutbacks has become a distant memory.”

The survey concluded that construction companies remain highly upbeat about their growth prospects for the next 12 months. Around 61% of the survey panel predict a rise in business activity, while just 8% anticipate a decline. Positive sentiment was mostly attributed to resurgent customer demand, alongside optimism about the UK economic outlook following the successful vaccine roll out.