Construction volumes grow despite 'overstretched supply chains'

posted by Lucy Patchett
4 December 2020

The construction sector has returned to strong performance levels but “supply chain challenges remain on the horizon”, according to the latest PMI.

Sustained recovery was achieved as output continued to accelerate and new order volumes grew at the quickest rate in over six years.

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index climbed to 54.7 in November, compared to 53.1 the previous month, maintaining levels above the 50.0 no-change value for the sixth consecutive month.

While all areas across construction increased in terms of output, house-building was the best performer, despite reduced levels compared to October. Civil engineering projects returned to growth, and commercial projects increased marginally but at the slowest rate in six months. 

Respondents said an improvement in orders and an increase in purchasing activity were due to a recovery in tender opportunities and heightened confidence in the sector. 

However, supply chain pressures were also experienced by firms, caused by a jump in demand for products and materials. This was signalled by longer lead-times among suppliers. Respondents also reported transport delays and stock shortages. 

Purchasing costs continued to rise, climbing at the fastest rate since April 2019, and stretched across the sector with a particularly sharp rise in timber prices.

Also, further job cuts were reported, despite the strongest business optimism across construction since the January pre-Covid period.

Tim Moore, economics director at IHS Markit, said: "UK construction output stayed on a recovery path in November and there were signs the main growth driver has transitioned from catch-up work to new projects.

“Commercial construction lagged behind the recovery seen elsewhere in the sector amid subdued demand for office space, retail developments and other corporate projects hit by the pandemic.”

"Supply chain challenges remain on the horizon, as signalled by another sharp lengthening of lead times for construction products and materials. Transport delays and low stocks among suppliers were reported by construction firms in November, which led to the fastest increase in purchasing costs for over one-and-a-half years."

Duncan Brock, group director at CIPS, said: “The energy behind this success was primarily the housing sector as sales remained buoyed by consumers rushing to meet the stamp duty relief deadline less than four months away and a rise in home improvement projects for locked down citizens.

“The below par performance of supply chains, overstretched by the bulk of this renewed demand held back further progress as lead times increased and shortages scuppered agile builders ready to get going again.

“Despite this accelerated improvement overall, the employment picture remained cheerless. In a bid to dampen down the effects of the sharpest rise in input costs since April 2019, builders were reducing headcounts to keep their own heads above water leading to another fall in job numbers.”

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