The latest Markit/CIPS UK Construction PMI survey covering January has revealed that cost inflation is rising at its fastest rate since 2008 and that construction sector growth is slowing with business activity and incoming new work both expanding at weaker rates than at the end of 2016.
Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS Construction PMI, said: “UK construction firms experienced a subdued start to 2017, with all the key categories of activity losing momentum. While housebuilding retained its position as the fastest growing part of the construction sector, the latest upturn was the weakest since the post referendum rebound emerged in September 2016.
“New business volumes also expanded at a softer pace in January, but there were more positive trends in terms of staff hiring and business optimism regarding the year-ahead outlook. The latest survey revealed an accelerated rise in payroll numbers at construction companies, as well as the fastest upturn in sub-contractor usage since the end of 2015. A number of survey respondents commented on a boost to their workloads from the resilient economic backdrop, alongside a strong pipeline of new project starts in 2017.
“Meanwhile, the weak pound continued to have an inflationary impact on the UK construction sector in January. Purchasing costs increased at the strongest rate for almost eight-and-a-half years, as suppliers sought to pass on higher prices for commodities and imported construction materials.”
David Noble, group chief executive at the Chartered Institute of Procurement & Supply, said: “Despite the biggest rise in input costs since August 2008, the sector was in buoyant mood at the start of the year, with highest level of confidence since December 2015.
“Continuing cost pressures from the weak pound and escalating commodity prices failed to impact significantly on purchasing volumes, as input buying increased following last month’s slight fall while job creation rose to an eight-month high. Previously stalled projects and plans were given the go-ahead as the sector ensured sufficient staff resource was in place to meet future demand.
“However, the dark cloud on the horizon was the continuing pressures on supply chains. Material shortages, lengthening delivery times and supplier performance, the weakest since June 2015, could become a roadblock to the sector’s continuing growth.
“In the short term at least, the outlook is positive, as long as economic conditions remain supportive and firms are able to control their rising costs.”
Corry Bourke, director at Urban Exposure, the residential development finance provider, said: “This slowdown in growth may be a reflection of building uncertainty in the lead up to triggering Article 50. In addition, the falling pound is continuing to put pressure on the industry, driving up costs for construction firms which heavily rely on cheap imports.
“The good news is that construction companies continue to remain positive about future growth opportunities. Indeed, we believe that once some certainty returns to the market, construction activity will be boosted even further.”