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Brexit, staff shortages, and battle for materials slow UK builders

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·Senior City Correspondent, Yahoo Finance UK
·3-min read
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Labour party leader Sir Keir Starmer meeting construction workers renovating the Winter Gardens in Blackpool last month
Labour party leader Sir Keir Starmer meeting construction workers renovating the Winter Gardens in Blackpool last month. Photo: Anthony Devlin/Getty Images

Growth in the UK's construction sector stalled last month as demand for building projects outstripped the supply of staff and raw materials.

Data provider IHS Markit said that in July the UK's construction sector grew at its slowest rate since February, coming off a 24-year high.

"July data marked the first real slowdown in the construction recovery since the lockdown at the start of this year," said Tim Moore, economics director at IHS Markit. "It was unsurprising that UK construction companies were unable to maintain output growth at the 24-year high seen in June, especially with widespread supply shortages and constrained capacity to take on additional orders. 

"The loss of momentum spanned all major categories of construction work and was most pronounced in the house-building sector."

Read more: Building merchant Travis Perkins warns inflation getting worse

IHS Markit's purchasing managers index (PMI), a survey of senior leaders within the sector, found businesses struggling to meet demand due to supply issues.

A building boom has led to a shortage of sub-contractors, with most specialist staff fully booked up. IHS Markit recorded the second fastest decline in sub-contractor availability in the building sector since it began collecting data in 1997.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said construction firms were likely to be struggling with staff shortages due to the "pingdemic". Over 1m people were "pinged" by the NHS COVID app last month and told to self-isolate.

Read more: Inflation and 'pingdemic' hobble UK's services rebound

Sourcing raw materials like bricks and concrete has also become an issue. Two-thirds of survey respondents said they were facing supply chain delays that were getting worse. IHS Markit linked the delays to Brexit, which has contributed to an ongoing shortage of lorry drivers in the UK.

A hunt for raw materials is driving up costs, acting as a further break on activity. IHS Markit reported "rapid" cost inflation in the construction sector. Earlier this week builders merchant Travis Perkins said it was seeing inflation hit as much as 7% in recent months.

"The rampant rise in prices for raw materials and transportation continued to be the construction industry’s heavy load, along with historically long delivery times," said Duncan Brock, group director at the Chartered Institute of Procurement & Supply.

"Faced with transport disruptions, shortages of essentials and Brexit delays, the initial spurt of activity this year is fast hitting the rocks. Building optimism was dampened to the lowest since January as it is difficult to foresee when all these challenges are likely to subside."

Read more: Why is the UK facing a HGV driver shortage and what could it mean for consumers?

Tombs said: "Looking ahead, the decline in Covid-19 infections in recent weeks should help to boost builders’ staffing levels. But construction demand might falter when surging input prices hit customers."

The downbeat news from the construction sector follows similar data from the services industry on Wednesday. IHS Markit said the UK's dominant service sector – which covers everything from banking to waiting tables – was struggling with staff shortages and inflation.

Watch: What is inflation and why is it important?

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