Confidence has returned to the UK building sector and its flying
UK construction and trade output significantly up
Some really good news coming out from IHS Markit/CIPS, the UK construction output has grown considerably in March '21 further demonstrating the UKs recovery from Covid.
Boosted by increased in commercial, domestic and civil engineering, the index they use to measure output jumped to 61.7 in March, up sharply from 53.3 in February. This is the strongest growth since September 2014.
Breaking these numbers down a little:
- Housebuilding is the best performing category (scores 64 on the index)
- Commercial Construction (62.7)
- Civil Engineering (58)
Growth fulled by delayed projects
A large proportion of this growth has come from the restarting of delayed projects, critically around office development, leisure and hospitality. New build residential projects has a major boost as did domestic renovation with higher spends in both categories.
This is all a boost to the UK's employment numbers as the rate of new job creation in the trade and construction industry is at its highest for two years.
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said:
"Construction was full of the joys of spring in March with a sudden leap into solid growth fuelled by across the board rises in workloads in all sectors. The commercial pipeline was particularly spectacular giving its best performance since late-2014.
“This upturn led to a significant boost in hiring levels with the fastest upturn in job creation since December 2018 offering a clear sign that companies are feeling more positive in planning for new builds and refurbishments of current properties.
“Business confidence was also standing tall with future optimism about the next 12 months the highest since June 2015 which suggests it is mostly plain sailing now that lockdowns are ending and vaccine programmes are underway. The unfortunate spanner in the works comes in the form of the steepest inflationary rise in raw materials and other construction items since August 2008 at the height of the last commodity price cycle. Supply chains are still underperforming and almost half of the survey respondents said they had experienced longer delays and higher costs. If this continues, it could easily cool the sector down a notch.”
Material supply costs are up
However this increase in demand and has exposed a sting in the tail and something we've heard from Powered Now uses for a number of months. The bigger demand for construction and trade materials has significantly increased lead times for deliveries by suppliers.
These supply constraints are also pushing material costs to new highs with the steepest increase since August 2008.
Tim Moore, Economics Director at IHS Markit, said:
“March data revealed a surge in UK construction output as the recovery broadened out from house building to commercial work and civil engineering. Total activity expanded to the greatest extent for six-and-a-half years as residential spending remained robust, commercial projects restarted and infrastructure contract awards moved ahead.
“Improving confidence among clients in the commercial segment was a key driver of growth, with development activity rebounding in sectors of the economy set to benefit the most from the improving pandemic situation. The increasingly optimistic UK economic outlook has created a halo effect on construction demand and the perceived viability of new projects.
“Constrained supplier capacity and stretched transport availability continued to pose challenges for the construction sector in March. Short supply of products and materials pushed up purchase prices at the fastest rate since August 2008.
“Continued pressures on supply chains are expected in the near-term, but these concerns did little to dampen confidence about the business outlook. The latest survey pointed to the strongest growth projections across the UK construction sector since those reported during a post-election bounce back in June 2015.”
We say
At Powered Now we are delighted to read the increase in both order books and confidence. Higher demand for construction and trade services has a real world trickle down to small and medium trade businesses.
However, we are cautious, while growth projections are the most upbeat since 2015 we are worried about a pent up demand for materials that could derail this optimism. We are hearing from small contractors and trade companies that are struggling to complete projects due to product availability.
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