UK Construction Industry Booms: Fastest Output Growth in Seven Years

Posted on 04 June 2021

Last month, the construction industry experienced an impressive surge in output growth, reaching its most robust level since September 2014. This remarkable achievement was fuelled by a rapid increase in new order volumes, which soared at the fastest pace witnessed in the past 25 years. The bellwether IHS Markit/CIPS UK Construction PMI Total Activity Index rose to 64.2 in May, surpassing its April value of 61.6. This marked the fourth consecutive month of recording a score above the neutral value of 50 and indicated the strongest rate of output growth in nearly seven years.

IHS Markit

Within the construction sector, the residential segment emerged as the frontrunner in terms of activity, with an index of 66.3 in May. Following closely behind was commercial work, which registered an index of 64.4. Commercial projects experienced their most significant increase since August 2007, showcasing robust demand after the reopening of customer-facing sectors in the UK economy. Additionally, civil engineering activity, though slightly slower in expansion compared to the previous month, still grew significantly with an index of 61.3.

 May witnessed a noticeable elongation in suppliers' delivery times, as vendor performance declined to its second-worst level since the survey's inception (surpassed only by April 2020). This delay was primarily driven by stretched supply chains and substantial increases in raw material prices. The average cost burdens rose rapidly, with the overall rate of input price inflation reaching the highest level in over 24 years of data collection.

Despite the challenges posed by these supply chain issues and cost burdens, construction companies maintain a highly optimistic outlook for their growth prospects over the next 12 months. Approximately 61% of the survey panel predicts an increase in business activity, while a mere 8% anticipate a decline. This positive sentiment stems from the resurgence of customer demand and the overall optimism surrounding the UK economic outlook, driven by the successful vaccine rollout.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, expressed his thoughts on the sector's remarkable expansion, stating, "The construction sector experienced a remarkable acceleration in growth, reaching its strongest level in seven years, with new orders coming in at the fastest rate in almost a quarter of a century." He further highlighted the significant contribution of residential work, which expanded at the quickest pace since August 2014, effectively addressing the recent scarcity of housing for rental or purchase. This growth was fuelled by consumer demand and supported by the stamp duty holiday.

Brock emphasised the challenges faced by purchasing managers, who found themselves under pressure to keep up with the surging demand. They had to swiftly adjust their sourcing strategies to tackle the depletion of essential materials, resulting in the fastest rate of purchasing since April 1997. Supply chain issues persisted, leading to mounting delivery times and prices. The industry grappled with skill shortages, making it increasingly difficult for recruiters to find qualified labour, despite the robust job creation within the sector. Thankfully, the threat of staffing cutbacks has become a distant memory in light of this flourishing backdrop of growth.

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