Construction sector soars but inflation worries persist

New orders in the UK construction sector are growing at rates not seen in 24 years although the pent-up demand is putting significant pressure on prices, according to new data.

The closely-followed IHS Markit/CIPS Purchasing Managers Index (PMI) survey also found that raw material prices were increasing with inflation hitting levels not seen since records began in 1997.

Thousands of projects had been delayed due to the Covid crisis but renewed optimism that the pandemic’s end is in sight has seen many restart in earnest.

As a result the PMI recorded a score for the sector of 64.2 in May, anything above 50 is seen as a sector in growth, beating the 61.6 score in April.

It marks the fourth consecutive month of growth for the sector.

House building was the best-performing category, followed by commercial work and finally civil engineering although this sub-sector saw a slight fall in the speed on growth compared with last month.

The survey found that the increase in work on commercial projects was the steepest since August 2007, reflecting strong demand conditions following the reopening of customer-facing areas of the UK economy.

Around 47% of the survey panel reported higher volumes of new work, while only 11% signalled a reduction.

As a result of the rise in demand the number of jobs in the sector also rose, with job creation at its fastest level since July 2014 and the use of sub-contractors jumped to record levels.

But the demand is pushing up prices and delivery times are lengthening as stockpiling by some firms is taking place, the survey found.

Construction companies remain upbeat about their growth prospects for the next 12 months, with 61% predicting further rises in business activity, while just 8% anticipate a decline, it added.

Positive sentiment was mostly put down to resurgent customer demand, alongside optimism about the UK economic outlook following the successful vaccine rollout.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), said: “The construction sector continued its expansion programme with a phenomenal acceleration in growth and the strongest for seven years as new orders filled in at the fastest rate for almost a quarter of a century.”

He added: “With inflation for goods and raw materials at a 24-year high, companies will be concerned that much-needed profits will be eaten away as building projects take shape and could be held up by some of the longest delivery times on record.

“Skills shortages are also becoming a problem, with recruiters finding talented labour hard to find, as job creation was at robust levels and the threat of staffing cutbacks has become a distant memory.”