UK construction industry surges due to shortage of materials

New data shows that, driven by new housing demand, the construction industry in the UK “growth significantly accelerated” in May, but in the long run, severe supply shortages may limit activities.

Construction companies attribute the surge in orders to strong demand for residential construction work following the introduction of the stamp duty holiday in July 2020, which exempted home buyers from the first £500,000 GST.

Duncan Bullock, group director of the Chartered Institute of Purchasing and Supply, said that the construction industry has “growth significantly accelerated” and new orders are being filled at the fastest rate in the past 25 years.

Tim Moore, head of economic index at IHS Markit, said builders also reported widespread shortages of construction materials.

Andrew Wishart, a real estate economist at Capital Economics, said that “material shortages may start to restrict construction activities in the short term”, but added that due to the backlog of demand, housing construction should remain strong.

The report pointed out that “severe supply shortages”, coupled with a surge in demand, have pushed up the input price inflation rate to the highest level since the beginning of the data collection record.

The IHS Markit/Cips Construction Industry Purchasing Managers Index rose to 64.2 in May from 61.6 last month, the largest increase in the past seven years.

PMI exceeded the 63.2 expected by economists surveyed by Reuters and exceeded the 50 mark, which shows that most companies report an expansion compared to last month.

After the reopening of customer-oriented sectors in the British economy, demand was strong. Commercial construction is the second-best performing industry, with its workload increasing at the fastest rate since August 2007.

Civil engineering activities also increased significantly in May, but the growth rate was lower than last month and lower than other industries.

The strong growth in construction workload led to a significant increase in the number of employees, and the rate of job creation increased to the fastest level since July 2014. The report also pointed out that the use of subcontractors has grown at a record rate.

Gareth Belsham, director of Naismiths, a national real estate consultant and surveyor, said: “Demand has gone from fierce to intense. In the industry, builders are making up for lost time and doing well for overall prosperity. ready.”

The sharp increase in supplier delivery times in May indicates a shortage of materials in the supply chain, a rate that has not occurred since April 2020, when most businesses in the UK and Europe were closed due to coronavirus lockdown restrictions.

The PMI data released this week shows that since the start of the survey, the activities of other economic sectors, such as the service industry and manufacturing, have broken 24 years of records.

Martin Baker, an economist at the Oxford Economics Institute, said the data showed that “the economic recovery is in full swing and it seems undeniable.”

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