Cost pressures remain at an eight and-a-half year high

Markit CIPS survey Feb 2017Construction companies have reported the second-fastest rise in input costs since August 2008 with some firms warning that the rise is causing contract completion delays.

The latest Markit/CIPS survey revealed that intense cost inflation persisted in February, which was overwhelmingly linked to higher prices for imported materials.

Respondents to the survey noted that the resilient economic backdrop and a stabilisation in client confidence since the EU referendum continued to help drive construction growth in February. However, there were also reports that demand growth had softened so far in 2017.

Reflecting this, incoming new work increased only marginally and at the slowest pace since last October.

Some construction companies noted that sharply rising input costs had an adverse impact on decision-making and contributed to delays in contract completions.

According to the Construction Purchasing Managers’ Index, housing growth softened to its slowest pace for six months in February, leaving civil engineering as the industry’s key growth driver.

The latest index recorded 52.5 in February, up slightly from 52.2 in January, but weaker than the post-referendum peak of 54.2 in December 2016.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, said: “Overall, the sector’s optimism was still high as workloads remained strong, propped up by the prospect of new projects and repeat business.

“Though the level of new orders was modest, it is the relentless and brutal rise in prices for construction materials, combined with the impact of the weaker pound, that could block the sector’s progress in the coming months.”

He also warned: “The drop in sub-contractor availability was the largest seen since January 2016, against a backdrop of rising employment numbers across the construction sector, which will add to worries around labour market capacity as we move along the path to Brexit.”

Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS Construction PMI, added: “Weaker momentum in the house building sector was a key factor weighing on construction growth, alongside a renewed fall in work commercial projects.

“Survey respondents mainly cited an underlying slowdown in sales growth, with the latest rise in new work the weakest for four months.

“In some cases, construction companies reported that sharply rising input prices had a disruptive impact on contract negotiations.

“February data revealed that input cost inflation remained at levels last seen in the summer of 2008. Suppliers’ efforts to pass on rising energy costs and global commodity prices have been amplified by the weak sterling exchange rate.”

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