Busy builders, surging prices

7 June 2021

Statistics for the month of May show that the UK construction sector remains on its resurgent path, with the strongest output growth since September 2014. 

Data from UK construction companies responding to the Purchasing Managers’ Index (PMI) survey compiled by IHS Markit for the Chartered Institute of Procurement & Supply (CIPS) also show that new order volumes increased at the fastest pace since the analysis 24 years ago, but that input cost inflation was also at a record high – something already discussed on the blog. 

House building (indexed at 66.3 against a no-change benchmark of 50.0) was the best-performing category of construction activity in May, followed by commercial work (64.4), the latter recording its steepest rise since August 2007.

Construction companies attributed the surge in order books to strong demand for residential building work and high levels of confidence about the near-term economic outlook.

They remain highly upbeat about their growth prospects for the next 12 months. Around 61% predict a rise in business activity, while just 8% anticipate a decline. Positive sentiment was mostly attributed to resurgent customer demand, alongside optimism about the UK economic outlook following the successful vaccine roll out.

However, suppliers' delivery times lengthened sharply in May, with stretched supply chains and steep rises in raw material prices contributing to a rapid increase in average costs. 

The CIPS sounds a cautionary note with inflation for raw materials at record levels.  It warns that companies will be concerned that much-needed profits will be eaten away as building projects take shape and could be delayed by long delivery times.

Will that affect contractors’ cash flow and their ability to pay bills on time? Might they ask you for lower hire rates?

If so, what will your answer be?