Thursday 05 August 2021 11:02 am | Updated: Thursday 05 August 2021 11:03 am

Covid recovery: Failing supply chains constrain UK construction industry

Severe shortages of essential materials triggered by faltering supply chains slowed the UK construction industry’s recovery from the Covid crisis last month, according to a closely watched survey released today.

The latest IHS Markit / CIPS construction purchasing managers’ index for the UK construction industry hit 58.7 in July, down sharply from June’s 24-year high of 66.3.

Suppliers of raw materials are buckling under the weight of extremely high demand, resulting in construction firms struggling to progress work amid widespread scarcity of inputs needed to complete projects.

“Survey respondents often cited difficulties keeping pace with the recent surge in demand for construction projects, especially due to raw material supply shortages,” IHS Markit said.

Output in the construction industry has eased as businesses have had to halt activity until they replenish depleted stocks.

Tim Moore, economics director at IHS Markit, said: “It was unsurprising that UK construction companies were unable to maintain output growth at the 24-year high seen in June, especially with widespread supply shortages and constrained capacity to take on additional orders.”

Housebuilding was the strongest performing sector of the construction industry in July, indicating that housebuilders scrambled to increase supply to capture higher profits by exploiting robust demand in the UK property market.

Input inflation extended in July after running hot for several months, suggesting construction firms may have paused work last month due to projects becoming financially unviable as a result of higher costs.

“Another rapid increase in purchasing costs was linked to global supply and demand imbalances, but many firms also noted that local issues had amplified inflationary pressures,” Moore added.

Experts warned that the key headwind facing construction firms is whether they are able to clear a swelling backlog of work by scaling supply quick enough whilst ensuring activity remains profitable.

Martin Beck, chief economic adviser to the EY Item Club, said: “Whether the construction sector will be able to satisfy this strong demand by boosting supply is the chief uncertainty.”

“A synchronised global recovery in construction has pushed up the price – and reduced the availability – of key materials, such as cement, copper and steel.”