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The latest IHS Markit/CIPS UK Construction PMI Total Activity Index has reported that order growth eases to five-month low during August.  Construction firms reported sustained, and severe, supply chain disruption in August, which contributed to an accelerated rise in input prices, and one that was the second sharpest in the history of the survey.

The headline seasonally adjusted IHS Markit/CIPS UK Construction PMI® Total Activity Index posted 55.2 in August, down from 58.7 in July, indicating activity has expanded in each of the last seven months.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said: “Formidable supply chain pressures restrained purchasing activity and building projects across the board in August as 68% of construction companies reported even longer delivery times for materials compared to July. A combination of ongoing covid restrictions, Brexit delays and shipping hold-ups were responsible as builders were unable to complete some of the pipelines of work knocking on their door.

“Material and staff costs went through the roof as job hiring accelerated to fill the gaps in capacity left behind by employee moves, overseas worker availability and brought on by skills shortages. Paying higher wages for experienced staff along with low stocks of materials at suppliers meant inflationary pressure rose at a rate almost on a par with June’s survey record. 84% of supply chain managers reported paying more for their purchases.

“These obstacles to construction’s progress are set to continue and are now affecting last year’s strongest performer – house building, which will exacerbate the problem of housing supply. However, optimism improved on last month as more than half of building firms believe that output will continue to rise in the year ahead.”

Usamah Bhatti, Economist at IHS Markit, which compiles the survey said: “The rate of input cost inflation faced by construction companies accelerated to the second-fastest on record, while the increase in subcontractor rates hit a fresh series high, fuelled by supply shortfalls in the sector.

“Despite this, businesses noted a stronger degree of optimism regarding the year-ahead outlook, as more than half of survey respondents predicted a rise in activity. This was underpinned by expectations that new contracts would be brought to tender across the construction sector as markets continued to recover from the economic disruption caused by the pandemic.”

Gareth Belsham, director of the national property consultancy and surveyors Naismiths, commented: “The construction industry is fast becoming a victim of its own success. The supply chain problems are no longer just project speed bumps; they’re applying the brakes to new orders as well.

“Soaring prices of key building materials, not to mention patchy availability and lengthy delays, have forced some construction firms to admit to clients that they simply cannot keep up with demand for building projects.

“With steel, timber and fuel costs all mushrooming, contractors are seeing their margins eaten away. The pipeline of new work is still healthy by historical standards, but orders are now coming in at the slowest rate since March.

“But despite a growing sense that the post-lockdown boom may have peaked, the mood in the industry remains overwhelmingly upbeat. More than half of the builders surveyed for the PMI predict a further increase in activity over the coming year.

“Cool heads in the industry have seen this all before, and experienced developers and builders are recalibrating prices and schedules and getting on with it.

“But there is still the nagging question about the painfully high levels of material cost inflation; is it a blip, or will it start to impact not just the delivery of projects, but demand as well?”

Total new work increased for the fifteenth consecutive month in August. While the latest improvement in order books was marked overall, the rate of growth softened to the weakest since March. Businesses noted a continued resumption of projects that had been delayed due to Brexit and the COVID-19 pandemic, though client confidence was dampened.

Looking ahead, construction companies remained highly upbeat about their growth prospects over the coming 12 months. Positive sentiment was underpinned by hopes of an expected rise in new contract awards across all subsectors of construction.

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