UK construction surge hit by material supply shortages

UK construction registered “a phenomenal acceleration in growth” in May driven by demand for new housing, but severe supply shortages could constrain activity in the long term, according to new data.

Construction companies attributed the surge in order books to strong demand for residential building work following the introduction of a stamp duty holiday in July 2020, which removes tax for home buyers on their first £500,000 spent.

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said the construction sector posted “a phenomenal acceleration in growth” as new orders filled in at the fastest rate for almost a quarter of a century.

Tim Moore, economics indices director at IHS Markit, said builders had also reported widespread shortages of construction materials.

Andrew Wishart, property economist at Capital Economics, said that “materials shortages may start to cap construction activity in the near term”, but added that house building should remain robust because of the backlog of demand.

The report noted that “severe supply shortages”, coupled with surging demand, had pushed the rate of input price inflation to its highest since data collection records began.

The IHS Markit/Cips purchasing manager index for the construction sector rose to 64.2 in May, up from 61.6 the previous month, its strongest rise in nearly seven years.

The PMI beat forecasts by economists polled by Reuters who had expected 63.2, and surpassed the 50 mark, which indicates that a majority of businesses report an expansion compared with the previous month.

Commercial building was the second best performing sector with work increasing at its steepest pace since August 2007, following strong demand after the reopening of customer-facing areas of the UK economy.

Civil engineering activity also increased sharply in May, but at a slower pace than in the previous month and less than in the other sectors.

The strong rise in construction workloads resulted in a marked rise in staffing numbers, with the rate of job creation increasing to the fastest since July 2014. The report also noted that the use of subcontractors increased at a record pace.

Gareth Belsham, director of Naismiths, the national property consultancy and surveyors, said: “Demand has gone from hot to white hot. Across the industry, builders are making up for lost time and buckling up for a full-on boom.”

Suppliers’ delivery times grew sharply in May, suggesting shortages in material supply chains, at a pace not registered since April 2020 when most businesses in the UK and Europe were shut as a result of coronavirus lockdown restrictions.

PMIs data released this week showed that activity in other parts of the economy such as services and manufacturing has broken 24-year records since survey began.

Martin Beck, economist at Oxford Economics, said the data showed “a revival in the economy is in full swing looks undeniable”.