Construction supply prices spike amid sector recovery

8 April 2021

A significant rise in output in the UK construction sector has caused heightened demand for supplies as well as a spike in prices and lead times.

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index recorded 61.7 in March, up from 53.3 in February. Increased business across house building, commercial work and civil engineering resulted in the strongest growth since September 2014.

House building was the best performing category, with major infrastructure projects also playing a role in growth. Workloads soared due to delayed projects coming back onboard, especially across markets frozen by Covid-19 impacts, such as hospitality, leisure, and office development. 

The sudden upturn in work has led to the steepest increase in input purchasing volumes since November 2020. Over two fifths (41%) of respondents reported longer delivery times from suppliers due to higher demand for construction products and materials.

As demand has overtaken supply, prices for construction products rose at the fastest rate in 13 years. Respondents said suppliers had cited Brexit and Covid-19 as contributing factors towards the price hikes.

Tim Moore, economics director at IHS Markit, said: Improving confidence among clients in the commercial segment was a key driver of growth, with development activity rebounding in sectors of the economy set to benefit the most from the improving pandemic situation. The increasingly optimistic UK economic outlook has created a halo effect on construction demand and the perceived viability of new projects. 

Constrained supplier capacity and stretched transport availability continued to pose challenges for the construction sector in March. Short supply of products and materials pushed up purchase prices at the fastest rate since August 2008.”

Duncan Brock, group director at CIPS, said: This upturn led to a significant boost in hiring levels with the fastest upturn in job creation since December 2018, offering a clear sign that companies are feeling more positive in planning for newbuilds and refurbishments of current properties.

Business confidence was also standing tall with future optimism about the next 12 months the highest since June 2015, which suggests it is mostly plain sailing now that lockdowns are ending and vaccine programmes are underway. The unfortunate spanner in the works comes in the form of the steepest inflationary rise in raw materials and other construction items since August 2008 at the height of the last commodity price cycle.

Supply chains are still underperforming and almost half of the survey respondents said they had experienced longer delays and higher costs. If this continues, it could easily cool the sector down a notch.

CIPS Knowledge
Find out more with CIPS Knowledge:
  • best practice insights
  • guidance
  • tools and templates