Construction input costs may have 'passed their peak'

Will Green is news editor of Supply Management
2 June 2017

Growth in the UK construction sector hit a 17-month high in May, driven by a rise in residential housebuilding, according to the latest PMI.

Despite the expansion, input price inflation eased from the highs seen at the start of the year, with some firms noting the peak phase of price hikes for imported materials had now passed.

The Markit/CIPS UK Construction Purchasing Managers’ Index climbed to 56 in May, up on 53.1 in April and a 17-month high. The neutral reading of 50 signals neither expansion nor contraction.

The increase in residential building was the fastest since December 2015, while the civil engineering and commercial sub categories saw weaker growth.

Demand for materials put pressure on supply chains, with lengthening delivery times, but input cost inflation was at a seven-month low.

Tim Moore, senior economist at IHS Markit, said: “While construction costs have ratcheted up over the past six to nine months the wave of inflation from imported materials now appears to have passed its peak.”

Duncan Brock, director of customer relationships at CIPS, said: “The sector had been held back by the rising cost of raw materials but after months of tense negotiations with suppliers, input prices are starting to stabilise.

“The rapid upturn in production is putting considerable pressure on construction supply chains. Suppliers are struggling to meet demand while there is a growing shortage of contractors to complete work.

“After the experience of the financial crisis it may be some time before risk aversion fully recedes and suppliers have more confidence to invest in their capacity.”

He added: “Only time will tell whether we are witnessing a long-awaited resurgence in housebuilding.”

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