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Construction pace slows

6 May 2022

Construction pace slows

The findings of the respected Construction Purchasing Managers’ Index (PMI) for April show that UK construction companies reported another strong rise in business activity during April, but the speed of recovery lost momentum amid weaker new order gains. 

Respondents to the survey, compiled by S&P Global for the Chartered Institute of Procurement & Supply, noted that higher costs and worries about the economic outlook had started to act as a brake on demand.

The degree of optimism about future workloads was the lowest since September 2020.

At 58.2 in April, down from 59.1 in March, the headline index, which measures month-on-month changes in total industry activity, signalled the weakest rate of output growth since January. The compilers note, however, that the index has nonetheless posted above the crucial 50.0 no-change mark in each month since February 2021.

Of the three main construction segments monitored by the survey, the fastest-growing remained commercial work (index at 60.5). Residential work, however, remained the worst-performing sub-sector in April and saw the greatest loss of momentum (53.8 vs. 54.9 in March).

Survey respondents cited escalating raw material prices and, in some cases, hesitancy due to higher borrowing costs and geopolitical uncertainty were reported as headwinds to demand.  

Furthermore, suppliers once again struggled to keep up with demand for construction products and materials. Around 45% of the panel reported longer lead times, while only 2% noted an improvement. 

Supply chain delays were attributed to shortages of staff, materials and transport, with these difficulties often exacerbated by delays at ports and the war in Ukraine.

Higher prices paid for energy, fuel and raw materials led to a steep increase in average cost burdens during April. Survey respondents also noted that the removal of red diesel subsidies had pushed up costs. The overall rate of purchasing price inflation accelerated to its fastest since September 2021.

Tim Moore, Economics Director at S&P Global, said: “The construction sector is moving towards a more subdued recovery phase as sharply rising energy and raw material costs hit client budgets.” 

He added: “Construction companies have built up strong order books since the reopening of the UK economy, which led to another round of rising employment in April and these project starts should keep the sector in expansion mode during the remainder of the second quarter.

"However, tender opportunities were less plentiful in April as rising inflation and higher borrowing costs started to bite. Consequently, longer-term growth projections have slumped from January's peak, with business optimism now the weakest since September 2020." 

● What the figures confirm is that we are living through an unprecedented period of uncertainty caused by many factors that are disrupting the normal supply and demand balance.

Given the abnormally high levels of construction activity and equipment demand since the post-lockdown recovery, some sort of correction was inevitable, although unexpected events like the Ukraine conflict have heightened the sense of unpredictability. 

As the blog has discussed before, some of these factors were bound to have an impact eventually and will correct themselves at some stage. And a comforting factor for the monent is that, despite these issues, the index indicators remain in positive territory. 



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