Cost and supply issues

Construction firms defy pressures but optimism slipping

Construction workersConstruction companies are worried by the impact of the war

UK construction firms are defying the biggest leap in costs in six months but the war in Ukraine is adding to growing price and supply chain challenges.

Builders reported problems obtaining supplies, and escalating energy, fuel and commodity prices last month, according to S&P Global’s latest purchasing managers’ index (PMI).

Tim Moore, economics director at S&P Global, said the sector had seen the fastest rise in costs for six months. “Intense inflationary pressures appear to have unnerved some construction companies,” he said.

Energy prices were already rising before the war in Ukraine led to further hikes in the cost of oil and gas

Despite these problems, the construction sector continued expanding last month. In March the sector was given a healthy score of 59.1, unchanged from February. New orders for construction projects climbed at the fastest pace since August 2021.

The index is a good estimate to measure whether the sector is growing and what sentiment is like. A score above 50 represents growth.

However, business optimism hit a 17-month low, with builders also concerned about the economic impact of the Ukraine war.

Moore added: “Business optimism slipped to its lowest since October 2020 on concerns that clients will cut back spending in response to rising prices and heightened economic uncertainty.”

CIPS group director Duncan Brock said: “A heartening result in March overall where new order levels were the highest since August last year, but not all the sub-sectors offered an equal contribution to output this month.

“Commercial projects were the most abundant, with the strongest rise in almost a year, but residential building became the laggard of the pack as affordability concerns were a factor in holding back progress, particularly in new housing and refurbishment work.

“The crippling rise in inflation ramped up again as transport and raw materials went up in price. Longer wait times for deliveries were reported by a third of supply chain managers.”

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