UK construction firms hit by supply squeeze as prices jump

PMI falls to 55.2, the lowest since February and down from July’s 58.7

Britain's construction industry grew at its weakest pace since the lockdown of early 2021 last month, hit by a severe shortage of building supplies which have risen sharply in price, a survey showed on Monday. The IHS Markit/CIPS construction Purchasing Managers' Index (PMI) fell to 55.2, the lowest since February and down from July's 58.7. The all-sector PMI – which combines the construction PMI with PMIs released last week for the larger services and manufacturing sectors - also fell sharply to a six-month low at 54.9, down from July's 59.2. "Supply chain disruption continued to disrupt activity across the UK construction sector, as demand for materials and logistics capacity outstripped supply," Usamah Bhatti, an economist at IHS Markit, said.

The shortages of building materials were compounded by a lack of available transport capacity and long wait times for items from abroad due to port congestion, he said. Britain, like other countries, is facing a shortage of lorry drivers. As a result, input cost inflation was the second-fastest since records began in 1997 and the increase in subcontractor rates hit a new high. The Bank of England expects inflation to rise sharply this year and hit a peak of 4 per cent, but it also thinks price growth will cool as problems caused by the reopening of the economy pass.

The IHS Markit survey showed construction firms were more optimistic about their growth prospects in the year ahead than in July. A PMI for Britain’s dominant services sector published last week showed a loss of momentum in company activity in August, reflecting staff shortages as well as supply chain difficulties.