Supply chain epidemic leaves UK construction reeling

An epidemic of raw material and worker shortages has left the UK construction industry in an almost anaemic state.

A closely watched survey measuring the health of the British construction industry notched 52.6 in September, the lowest reading for eight months and down from 55.2 in August.

Construction firms have struggled to progress and complete projects due to supply chain breakdowns restricting the supply of resources.

Work was disrupted by a paucity of sub-contractors, which construction businesses rely heavily on to deliver projects. Scarce supplies of sub-contractors has swelled costs, with pay rising at the highest rate since records began, IHS Markit, which produces the survey, said.

Tim Moore, director at IHS Markit, said: “September data highlighted a severe loss of momentum for the construction sector as labour shortages and the supply chain crisis combined to disrupt activity on site.”

Alarmingly, nearly eight in 10 construction businesses are absorbing higher input prices.

Severe imbalances in supply and demand in the construction sector are putting upward pressure on prices. Strong appetite to renovate homes, coupled with a booming housing market and increased government infrastructure spending is rubbing up against severe supply constraints.

Although construction output represents a small proportion of the UK economy, IHS Markit’s survey for the services economy shows businesses are hiking prices at record rates.

Businesses and consumers are in the teeth of a bout of nasty inflation which is threatening to throw the UK’s economic recovery from the Covid-19 crisis off course.

Gas prices have never been higher, oil prices ticked up to a seven-year high this week, while petrol costs are at historic levels. 

Max Jones, director in Lloyds Bank’s infrastructure and construction team, said: “Labour, energy and materials shortages are straining contractors. Taken individually the sector would be well-equipped to handle these supply issues, but collectively they threaten to slow the recovery just as businesses should be eyeing up growth.”

Research by the British Chambers of Commerce found nearly half of its members expect prices to accelerate in the coming months, while 60 per cent factory firms intend to hike prices.