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Construction Sector Expands at its Fastest Pace Since 2014

Construction Sector Expands at its Fastest Pace Since 2014
09 April 2021
 

UK construction output gained considerable momentum in March, supported by rises in house building, commercial work and civil engineering.

Adjusted for seasonal influences, the IHS Markit/CIPS UK Construction Total Activity Index registered 61.7 in March, up sharply from 53.3 in February. A reading of 50 and above is generally considered to indicate growth. 

This latest reading signalled the strongest rate of construction output growth since September 2014. 

The survey, compiled for the Chartered Institute of Procurement and Supply, also showed the mobilisation of delayed projects, especially in areas such as hospitality, leisure, and office development.

 

"Construction was full of the joys of spring in March with a sudden leap into solid growth fuelled by across the board rises in workloads in all sectors. The commercial pipeline was particularly spectacular giving its best performance since late-2014."

–Duncan Brock

Group Director, Chartered Institute of Procurement & Supply

 

Strong Activity in Commercial Construction

 

Housebuilding (index at 64.0) was the best-performing category, with growth the fastest since July 2020. Strong increases in activity were also seen in commercial construction (62.7) and civil engineering (58.0) in March.

New project starts increased employment numbers, with the rate of job creation the strongest for over two years in March. Construction companies also signalled a sharp increase in purchasing volumes in response to greater workloads. The latest upturn in input buying was the steepest since November 2020.

A high demand for construction products and materials contributed to longer wait times for deliveries by suppliers, with around 41 per cent of the survey panel reporting longer delivery times from suppliers. Supply constraints and logistics issues were commonly reported by construction companies, especially for imported items.

Imbalanced demand and supply for construction inputs led to the steepest increase in purchasing prices since August 2008. Survey respondents widely noted that suppliers had cited Brexit and COVID-19 as reasons for price hikes in March.

 

Upbeat Growth Projections

 

Tim Moore, Economics Director at IHS Markit, which compiles the survey commented: "March data revealed a surge in UK construction output as the recovery broadened out from house building to commercial work and civil engineering. Total activity expanded to the greatest extent for six-and-a-half years as residential spending remained robust, commercial projects restarted and infrastructure contract awards moved ahead.

"Improving confidence among clients in the commercial segment was a key driver of growth, with development activity rebounding in sectors of the economy set to benefit the most from the improving pandemic situation. The increasingly optimistic UK economic outlook has created a halo effect on construction demand and the perceived viability of new projects.

"Constrained supplier capacity and stretched transport availability continued to pose challenges for the construction sector in March. Short supply of products and materials pushed up purchase prices at the fastest rate since August 2008.

"Continued pressures on supply chains are expected in the near-term, but these concerns did little to dampen confidence about the business outlook. The latest survey pointed to the strongest growth projections across the UK construction sector since those reported during a post-election bounce back in June 2015."

 

Fasted Upturn in Job Creation Since 2018

 

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, added: "Construction was full of the joys of spring in March with a sudden leap into solid growth fuelled by across the board rises in workloads in all sectors. The commercial pipeline was particularly spectacular giving its best performance since late-2014.

"This upturn led to a significant boost in hiring levels with the fastest upturn in job creation since December 2018 offering a clear sign that companies are feeling more positive in planning for new builds and refurbishments of current properties.

"Business confidence was also standing tall with future optimism about the next 12 months the highest since June 2015 which suggests it is mostly plain sailing now that lockdowns are ending and vaccine programmes are underway.

"The unfortunate spanner in the works comes in the form of the steepest inflationary rise in raw materials and other construction items since August 2008 at the height of the last commodity price cycle. Supply chains are still underperforming and almost half of the survey respondents said they had experienced longer delays and higher costs. If this continues, it could easily cool the sector down a notch."

Picture: a photograph of two people on a construction site, both wearing hard hats

Article written by Ella Tansley | Published 09 April 2021

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