Ukraine war and inflation see business optimism slump

Will Green is news editor of Supply Management
6 April 2022

Business optimism in the construction and services sectors has dropped to a 17-month low against the backdrop of the Ukraine war, according to the latest PMIs.

Escalating inflationary pressures and the economic impact of the war meant 48% of construction survey respondents expected a rise in business activity over the next 12 months, the weakest sentiment seen since October 2020.

The S&P Global/CIPS UK Construction Purchasing Managers’ Index registered 59.1 in March, unchanged from February and against the 50 neutral reading, which signals neither expansion nor contraction.

Commercial work was the best-performing segment as projects restarted following panemic restrictions, while recoveries in civil engineering and residential work lost momentum.

Total new orders expanded with companies citing improving tender opportunities and resilient customer demand, despite reports of economic uncertainty and rising costs limiting new business growth.

Imbalanced supply and demand and rising energy, fuel and commodity prices resulted in a rapid rise in average cost burdens, while capacity constraints, lack of haulage availability and ongoing logistics difficulties led to another sharp downturn in supplier performance.

Duncan Brock, group director at CIPS, said: “With these severe challenges, it is no surprise that business optimism for the months ahead has been affected and fell to levels last seen in October 2020. The sector is facing a number of roadblocks as levels of job creation were also held back with the ongoing skills shortage and lack of builders.”

Meanwhile, inflation and the war also weighed on business optimism in the services sector, which also dipped to the lowest level since October 2020.

The S&P Global/CIPS UK Services Purchasing Managers’ Index rose to 62.6 in March, up on 60.5 in February and the strongest growth for 10 months.

But severe cost pressures led to the steepest rise in output charges since the index began in 1996.

Tim Moore, economics director at S&P Global, said: “The near-term growth outlook weakened in March, with optimism dropping to its lowest since October 2020 as the war in Ukraine and global inflation concerns took a considerable toll on business sentiment.”

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