The headline seasonally adjusted IHS Markit/CIPS UK Construction PMI Total Activity Index registered 59.1 in February 2022, up from 56.3 in January. It was the fastest rise in construction output for eight months.
The headline index has now posted above the neutral 50.0 threshold in each of the last 13 months and the February score was its highest for eight months.
Construction companies continue to report widespread supply constraints and rapidly increasing input costs, though the rate of inflation for the industry was the least severe for 11 months.
Despite this, ongoing disruption dampened confidence, to its lowest level since January 2021.
House-building (index at 61.5) replaced commercial work (58.4) as the fastest growing category of construction work in February. The latest increase in residential work was the strongest for eight months. Commercial construction also expanded at a quicker pace than in January, with the rate of growth the sharpest since last July. Meanwhile, civil engineering activity (at 57.5) increased more strongly than any month since June 2021.
New order growth accelerated for the fourth month running to extend the current sequence of expansion to 21 months. Moreover, the rate of growth was the fastest since last August as construction companies commented on stronger client demand and new projects going out to tender.
Around 36% of the survey panel reported longer delivery times among suppliers in February, while only 4% saw an improvement. Delays were overwhelmingly linked to continuing driver and material shortages, as well as international shipping delays. That said, the number of construction firms reporting longer lead times for deliveries was down from a peak of 77% in mid-2021.
Only 48% of panellists forecast an increase in output during the year ahead, the softest degree of optimism since January 2021 as firms cited concerns about the impact of rising costs and supply shortages. A month ago, 53% forecast a rise. Similarly, the number predicting activity to shrink has risen from 5% to 9%.
Usamah Bhatti, economist at IHS Markit, which compiles the survey, said: "UK construction companies achieved a faster expansion in output volumes in February as the economy recovered from the recent wave of Covid-19 infections related to the Omicron variant. House-building had the strongest showing, as signalled by the fastest rise in residential work for eight months.
"Despite continued volatility in price and supply conditions, the overall rate of new order growth accelerated from January to reach the fastest since last August as client confidence improved in line with economic activity as Plan B restrictions were fully lifted.
"Nonetheless, widespread reports of shortages of materials and labour continued to plague the UK construction sector, while rising input costs placed further strain on businesses. It appears that the peak of price pressures has passed as the rate of input cost inflation eased for the sixth month in a row to reach the softest since last March. At the same time, reports of supplier delays were considerably lower than those seen in the middle of last year. Yet, price and supply constraints weighed on overall business confidence, which eased to the softest in just over a year."
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "The construction sector maintained its growth momentum whilst battling a number of headwinds such as supply issues and higher input costs to put in its best performance for eight months in February.
"All three sectors offered positive news, but housing stormed ahead with the strongest rise in residential building since June last year. The reasons for this improvement ranged from securing contracts in the pipeline of new work and improved deliveries for some materials. That said, hampered supply chains still made business difficult across all sectors and deliveries remained painfully slow.
"Also, the highest rise in order books for six months didn’t do enough to improve future optimism as business expectations dropped to January 2021 levels. Curbing inflation will continue to be a big issue for building firms who will be nervous about securing continuing supply and offsetting price rises to improve business margins, especially if costs continue their skyward trajectory."
Fraser Johns, finance director at construction contractor Beard, said: “Despite some bumps in the road, the construction sector continues to recover and there is hope that the future looks bright. The highest rise in order books for six months confirms that client confidence is building and there are opportunities for construction firms.
“There are still hurdles to overcome – namely inflation, labour shortages and lead in times - but by working closely with both customers and supply chains, the volatility in the market can be overcome. The vacancies in the construction sector also present an opportunity to increase diversity. With labour shortages impacting across the board, more needs to be done to encourage people into the sector."
Brendan Sharkey, head of construction and real estate at accountancy network MHA, said: “The UK construction sector has got a good wind in its sails. Inflation is a very grave concern but there are real strengths underpinning demand for new-build housing. In addition we’re starting to see that Brexit, although painful, has already led to businesses in the sector diversifying their supply chains. This stands them in good stead to weather the economic shocks of Russia’s invasion of the Ukraine.
“Housing demand shows little sign of seriously slowing. In the end it turns out that stamp duty relief (which has ended) and even possibly Help to Buy were not necessary to buoy the market. Two big factors explain the current very high demand for new housing. First, renting is getting ever more expensive, so it makes sense for people to get on the housing ladder, while mortgage rates are still reasonable, even though house prices are high. Second, energy efficiency regulations are driving buyers, investors and developers towards new-builds because older homes usually don’t meet the requirements.
“However, inflation remains a real menace. The ultimate cause of the kind of inflation the sector dreads is the rising price of energy with oil and liquefied natural gas (LNG) prices now sky high. As margins are thin in the construction sector there is a real prospect inflationary pressures, without proper controls, will put an end to some businesses.
“Brexit was a trauma for the sector but people have now adapted to an extent to the new environment. Businesses are paying more attention to their supply chains and understand the need for diversification more than they did. This means the sector might be slightly better placed to weather disruption flowing from the Russian invasion of Ukraine than it would have been had Brexit not happened.”
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