Construction output slips to nine-month low as Ukraine war bites

Concerns over the impact of the Russia-Ukraine war have forced down the construction sector’s growth, according to the Purchasing Managers’ Index (PMI).

The index, compiled by IHS Markit and the Chartered Institute of Procurement & Supply (CIPS), registered a score of 52.6 in June, down from 56.4 in May. It meant business activity dropped to its slowest pace since September 2021.

It was the residential sector that was hit most severely by uncertainty as activity contracted for the month, falling to 49.3 – the first time since May 2020 that this had occurred.

Accountancy firm MHA Moore and Smalley partner Joe Sullivan warned the sector was now “seeing the full effects of the war”, adding that it had pushed prices up. He said these would remain high “for some time”.

“Together with these input cost increases, further shortages of raw materials like timber and manufactured goods, such as generator components, are behind the growing number of insolvencies in the construction sector,” he added.

Both the commercial and civil engineering sectors kept growing, although they did slow. Civil engineering was the most robust, with a reading of 54.3 (compared with 55.5 in May). Commercial saw a heavier fall to 54.3, from 59.8 in the previous month.

The latest figures also revealed concerns over the short-term economic outlook for the rest of the year.

Less than four in 10 firms said they expected business activity to increase this year, which is the lowest figure since June 2020. The labour shortage also remains a sticking point across the industry, despite higher wage offers.

Sullivan said further wage increases are “inevitable”, adding: “Contractors are under pressure not only to maintain their current head count for existing work but to retain the individuals with the appropriate skills necessary for opportunities available for tender.”

But Lloyds infrastructure and construction director Max Jones said the firms he spoke to were opting for “non-financial perks to recruit” rather than offering wage rises.

The widespread labour shortages were also partly responsible for the swelling lead times across the sector, which were also hit by widespread transport problems, the PMI survey revealed.

Scape chief executive Mark Robinson said the level of inflation “remains a threat” to future developments, which could scupper the government’s Levelling Up agenda.

“Early client engagement and collaborative project management will be vital for the sector’s health in the coming months, ensuring that projects remain on track during the challenging times ahead,” he added.

The index measures construction output across the commercial, civils and residential sectors. Each sector is given a score: above 50 indicates activity is expanding and below 50 suggests it is slowing.

Earlier this week, Builders Merchants Federation (BMF) chief executive John Newcomb expressed “serious concerns” about labour supply and costs in the industry. He warned that labour issues were set to become a bigger issue in 2023 than material availability and price inflation.

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