Costs balloon as demand outstrips supply in construction sector

Will Green is news editor of Supply Management
5 November 2020

Demand for materials outstripping supply in the construction sector saw input price inflation in October rise to its highest since April 2019, according to the latest PMI.

Delivery times for products and materials lengthened sharply as the rebound in activity following the first lockdown continued to put pressure on supply chain capacity.

However, the rate of growth was the slowest for five months, with civil engineering declining for the third month running and a weak expansion in commercial work. Job shedding continued, though at a rate slower than in the second quarter.

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index dropped to 53.1 in October, down on 56.8 in September and against the no-change reading of 50.

New business was mostly attributed to projects starting that had been delayed earlier in the pandemic, while house building was the best-performing area.

Duncan Brock, group director at CIPS, said: “Higher levels of purchasing to meet the demands of the biggest rise in new orders since December 2015 were met with roadblocks of material shortages and the highest cost inflation since April 2019.

“Supplier delivery times acted as a drag on completion as builders rushed to finish work in hand and meet new build requests.”

Meanwhile, growth in the services sector slowed sharply in October with a drop in new orders for the first time since June, overwhelmingly attributed to Covid restrictions on trade.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index fell to 51.4 in October, down on 56.1 in September.

There was a solid increase in average cost burdens, putting margins under pressure, while prices charged by providers dropped for the second month in a row amid discounting to stimulate sales.

More than twice as many survey respondents (26%) reported a drop in employment as those who indicated a rise (12%).

Tim Moore, economics director at IHS Markit, said: “October data indicates that the UK service sector was close to stalling even before the announcement of lockdown two in England, with tighter restrictions on hospitality, travel and leisure leading to a slump in demand for consumer-facing businesses.

“This was only partly offset by sustained expansion in areas related to digital services, business-to-business sales and housing market transactions.”

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