Steady construction output
4 March 2021
Figures released today give more positive indicators about the state of UK construction output, which is in turn more good news for the hire industry. However, there’s perhaps also a warning to heed.
Monthly statistics for February in the Purchasing Managers’ Index (PMI) survey compiled by IHS Markit for the Chartered Institute of Procurement & Supply show that building firms experienced an overall solid return to after a setback in some markets at the start of 2021.
The headline seasonally adjusted Total Activity Index posted 53.3 in February, up from 49.2 in January. The index has registered above the 50.0 no-change mark in eight of the past nine months.
Particularly pleasing for many hirers is that residential work remained the strongest area of growth in February. While the pace of recovery slowed, the index is still in positive territory. Respondents also reported the sharpest rise in commercial work since last September and a slower fall in civil engineering activity.
Input buying picked up as construction firms prepared for new project starts, says the survey Improving order books and early signs that the vaccine rollout will release pent-up demand also led to the strongest degree of construction sector optimism for over five years.
Interestingly, some firms reported temporary delays on site arising from adverse weather, which chimes with what several hirers have been saying in recent weeks following the wet, cold and snowy conditions in many parts of the country.
So there are more factors at work here than the pandemic and the consequent economic turbulence.
Indeed, on the less positive side, some companies cited supply chain issues, especially for timber, and extended supplier lead times as vendors struggled with transport delays and stronger demand conditions.
Moreover, stretched global supply chains, higher shipping charges and rising commodity prices contributed to the sharpest increase in average cost burdens across the construction sector since August 2008.
There’s surely a warning here. If costs of materials, equipment and transport are rising, don’t be surprised if suppliers have to increase prices simply to cover their overheads. Some have already had to.
And it follows that, if hire companies face higher costs for equipment and spares, they should think long and hard about cutting hire rates. Mind you, they should consider carefully about lowering them unduly at any time to avoid triggering a race to the bottom.