PMI reports strong increase in construction output

The Spring bounce continues for UK construction companies, with strong increases in output volumes during April, with the latest figures from IHS Markit/CIPS UK Construction PMI® Total Activity showing positivity in civil engineering activity, commercial work and house building.

This month, the Index posted 61.6 in April, down only fractionally from March’s six-and-a-half year peak of 61.7. Any figure above 50.0 indicates an overall expansion of construction output.

Despite the pandemic and nationwide lockdown, construction has continued to grow, with the index posting in growth territory in ten of the past eleven months, with January 2021 the exception.

The latest figures show the fastest rise in overall new orders since September 2014.

Commercial work (index at 62.2) was the best-performing broad category of construction output in April, with survey respondents widely commenting on a boost to client demand from rising business confidence and the reopening of the UK economy.

Civil engineering bucked the softer overall growth trend in April and signalled its fastest speed of recovery since September 2014 at 61.5. Once again, government policy on infrastructure has pushed programmes forward, with increased levels of work for major infrastructure programmes, including contract awards from HS2 and Highways England.

Residential building projects and new housing developments are providing robust demand throughout the industry, with new work increasing for the eleventh consecutive month. Moreover, the latest improvement in order books was the strongest for just over six-and-a-half years. This contributed to the steepest rate of job creation across the construction sector since December 2015.

However, as demand grows for new business, this is reflected in supply chains, with input buying expanding at the fastest pace since September 2014. This rapid rise in demand for construction products and materials contributed to the latest lengthening of suppliers’ delivery times – the third-greatest since the survey began in 1997, exceeded only by those seen during the lockdown in April and May last year.

Construction firms mostly cited demand and supply imbalances, but some suggested that Brexit issues had led to delays with inputs arriving from the EU. Higher prices paid for a wide range of construction items contributed to the fastest overall rate of cost inflation since the survey began in April 1997 (index at 84.6, up from 77.8 in March). Steel, timber and transportation were among the most commonly reported items up in price.

Construction companies report confidence for the coming months, and are highly upbeat about their growth prospects in April. More than half of the survey panel (57%) expect a rise in business activity during the next 12 months.

Tim Moore, Economics Director at IHS Markit, commented: “The UK construction sector is experiencing its strongest growth phase for six-and-a-half years, with the recovery now evenly balanced across the house building, commercial and civil engineering categories.

“New orders surged higher in April as the end of lockdown spurred contract awards on previously delayed commercial development projects. This added to the spike in workloads from robust housing demand and the delivery of major infrastructure programmes such as HS2.

“Shortages of construction materials and much longer wait times for deliveries from suppliers were a sting in the tail for the sector. Aggregates, timber, steel, cement and concrete products were all widely reported as in short supply by survey respondents.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply said: “The building blocks were in place in April as builders confirmed more work, more job opportunities and strong optimism for the next 12 months.”