Builders increase stock buying to head off expected price rises

Will Green is news editor of Supply Management
5 January 2017

UK construction firms have been forward purchasing stocks and contributing to shortages at suppliers, a survey of buyers has found.

The Markit/CIPS UK Construction Purchasing Managers’ Index found input costs rose at the fastest rate since April 2011 in December as growth in the sector reached an 11-month high.

The PMI increased to 54.2 in December, up on 52.8 in November and against the no-change position of 50, which indicates neither growth nor contraction.

New orders rose at their fastest since January 2016 but firms experienced intense cost pressures as suppliers passed on higher imported raw material prices.

David Noble, group CEO, CIPS, said: “Prices continued on their upward inflationary trajectory, at the strongest rate for five-and-a-half years. In response, firms have increased their stock buying to not only fulfil new orders, but also to counteract anticipated price increases throughout the year, as inflationary pressures are set to continue and the weakness of the pound persists.

“Stock levels at suppliers were also under pressure, as vendor performance deteriorated to the greatest extent since June 2015.”

Residential building remained the best-performing sub-category while work on civil engineering projects picked up but commercial construction increased only marginally.

Tim Moore, senior economist at IHS Markit, said: “The main negative development in December was a sustained acceleration in input cost inflation to its strongest since 2011. UK construction companies noted that the weaker sterling exchange rate had resulted in higher costs for a wide range of imported materials, while some also reported that forward purchasing of inputs had led to depleted stocks among suppliers.”

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