August data from Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) indicated a continued strong recovery in UK construction output is leading to rising subcontractor prices and lengthening delivery times.
The recovery is driven by sharp rises in housing, commercial and civil engineering activity. A sustained upturn in workloads and widespread confidence towards the business outlook resulted in another rapid upturn in employment.
Subcontractor work picked up sharply and at the fastest rate since the survey began in April 1997. This in turn contributed to a survey-record drop in subcontractor availability and a much steeper increase in rates charged by subcontractors.
Growing pressure means that delivery times from suppliers lengthened to the greatest degree since the PMI survey began over 17 years ago. Construction firms widely commented that low stocks and capacity pressures had resulted in worsening supplier performance.
Meanwhile, latest data indicated a sharp and accelerated increase in average cost burdens across the construction sector. The rate of input price inflation was the fastest since July 2011, with some firms noting that strong demand for inputs had allowed suppliers to re-establish margins in recent months.
Commenting on the report, David Noble, Group Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said:“August saw the quality of subcontracted work deteriorate at the fastest rate since the survey began in 1997, combined with a record reduction in the availability of subcontractors and a record rise in the rates charged. The sector is struggling to find enough skilled tradesmen to keep pace with new work and the labour market will continue to put pressure on costs until the next wave of apprentices begin to enter the jobs market. Indeed, across the supply chain, delivery times have seen the sharpest rise since the survey began, with input prices growing at the fastest rate since July 2011. With the UK’s appetite for building materials.”
The PMI August index was 64.0, up from 62.4 in July, signalling the fastest overall increase in output levels since January. The latest reading also pointed to the second-strongest rate of output expansion since the pre-recession peak seen in August 2007. Construction firms remain highly upbeat about the prospects for output growth over the year ahead, with more than half (59%) expecting a rise in business activity and only 7% forecasting a decline.