‘Two steps forward and one step back’ for construction

4 February 2021

There was a marginal decline in UK construction output as concerns about the near-term economic outlook led to client hesitancy, according to the latest PMI.

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index registered 49.2 in January, down from 54.6 in December, signalling a decline in overall construction output for the first time since May 2020. 

Around 45% of survey respondents reported longer lead times for the delivery of construction inputs as transport shortages and delays at UK ports resulted in a “severe downturn” in supplier performance.

Commercial activity and civil engineering projects fell while there was strong growth in the residential category. New business volumes also rose slightly, but the rate of expansion has lost considerable momentum since the end of 2020. 

Employment numbers dropped in January, which reversed the expansion seen during December, with job cuts were linked to the non replacement of leavers following project completions.

Purchasing activity increased for the eighth consecutive month in January, but strong demand for construction inputs and ongoing transportation issues resulted in the steepest downturn in supplier performance since May 2020.

Construction firms continued to experience intense cost pressures, due to rising prices for plaster, steel and timber and the overall rate of input price inflation accelerated to its highest for just over two-and-a-half years.

Duncan Brock, group director at CIPS, said: “Builders were feeling the pressure in January as new order growth across the sector fell sharply to the slowest expansion rate since June last year and the commercial sector particularly acted as a brake to sustained recovery.

“Clients hesitated to commit to new workflows because of concerns around the vitality of the UK economy which in turn brought cautious job hiring and obliterated the gains made in employment numbers in December. The residential sector had been relatively immune to the effects of lockdowns and pandemic disruptions but it too was beginning to show signs of weakness for the first time in over six months.

"Progress in the sector feels like two steps forward and one step back for builders, as the shortages and the longest delays in supply chains since May affected optimism and led to the sharpest rise in building costs since June 2018.”

Tim Moore, economics director at IHS Markit, said: “The construction sector ended a seven-month run of expansion in January as a renewed slide in commercial work dragged down overall output volumes. House building was the only major construction segment to register growth, but momentum slowed considerably in comparison to the second half of last year.

"Construction companies continued to report major delays with receiving imported products and materials from suppliers, with congestion at UK ports contributing to the sharpest lengthening of delivery times since May 2020. Adding to the squeeze on the construction sector, rising steel and timber costs led to the fastest rate of input price inflation for just over two-and-a-half years.”

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