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UK construction sector shrugs off supply chain crisis

·2-min read
Florence - the largest ever tunnel boring machine used on a UK rail project - is unveiled at the HS2 site in West Hyde near Rickmansworth in Hertfordshire. Picture date: Thursday May 13, 2021. (Photo by Steve Parsons/PA Images via Getty Images)
The construction PMI index rose to 54.6 last month, up from 52.6 in September, but new orders remained unchanged from September’s eight-month low. Photo: Steve Parsons/PA Images via Getty Images

Output growth in the British construction industry gained pace in October despite the ongoing supply chain crisis continuing to take its toll.

According to data firm IHS Markit and CIPS, recovery accelerated from September’s eight-month low, with house building regaining its place as best-performing category in the sector, overtaking commercial work.

The construction PMI index rose to 54.6 last month, up from 52.6 in September, but new orders remained unchanged from September’s eight-month low.

Any reading over 50 indicates growth, however, growth remained much softer than the 24-year high reached in June.

UK construction PMI data. Chart: IHS Markit, CIPS
UK construction PMI data. Chart: IHS Markit, CIPS

The latest increase in residential work was also the strongest for three months, IHS said.

Commercial construction also expanded at a quicker pace than in September, with survey respondents citing a boost from looser pandemic restrictions. Meanwhile, civil engineering activity increased only marginally during the month.

IHS highlighted that there were still severe shortages of staff and materials during the month.

More than half of the survey panel (54%) reported longer delivery times among suppliers in October, while only 2% saw an improvement. Delays were linked to haulage driver shortages and international shipping congestion.

However, the number of construction firms reporting longer wait times for supplier deliveries was down from 63% in September and a peak of 77% in June.

Read more: European markets lifted by US Fed winding down stimulus

About 73% of respondents also reported an increase in purchase prices in October thanks to rising energy and commodity prices, as well as raw material shortages and a lack of transport availability.

“There were widespread reports that shortages of materials and staff had disrupted work on site, while rising fuel and energy prices added to pressure on costs,” Tim Moore, director at IHS Markit, said.

“Nonetheless, the worst phase of the supply crunch may have passed, as the number of construction firms citing supplier delays fell to 54% in October, down from 63% in September. Similarly, reports of rising purchasing costs continued to recede from the record highs seen this summer.”

Max Jones at Lloyds Bank said: "Despite another month of output growth, the reality is beginning to bite for contractors as they face into the challenges winter brings and adjust to a future without state support.

"What will become evident is which contractors have underbid and overpromised on contracts as they find their budgets don’t cover the rising costs of supplies."

Watch: What is inflation and why is it important?

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