Subcontractor charges increase at fastest rate on record

MarkitSubcontractors’ rates are growing at their fastest pace since records began 20 years ago, the latest Markit/CIPS UK Construction PMI index has revealed.

UK construction companies indicated a sharp loss of growth momentum in April, with output and new order expanding at the slowest rates since June 2013. A number of survey respondents suggested that uncertainty related to the forthcoming general election had contributed to delays in clients’ spending decisions.

However, construction sector job creation remained robust in April and there were widespread reports of worsening capacity pressures. This contributed to another drop in sub-contractor availability and a corresponding increase in sub-contractor pay rates, with the latest rise the fastest since the survey began in April 1997.

Tim Moore, senior economist at Markit, said: “April’s survey highlights another growth slowdown across the UK construction sector, with new work expanding at the weakest pace for almost two years.

“The uncertain general election outcome appears to have put some grit in the wheels of decision making. Construction firms widely noted delays with clients’ budget setting and a reduced propensity to commit to new projects.

“Despite experiencing pre-election risk aversion among clients in April, construction companies indicated a strong degree of confidence regarding the year-ahead outlook.

He said that as a result, job hiring was robust and little-changed since March, placing further pressure on skilled staff availability.

“Taken as a whole, the latest survey presents a far more upbeat picture than the curiously weak official construction output data for the first quarter of 2015,” said Moore.

“Not only does the UK Construction PMI survey indicate that output remained in growth territory during April, but the latest data signals ongoing strains on operating capacity. Highlighting this, subcontractor pay rates, a useful bellwether of industry pressures, increased at the fastest pace since the survey began 18 years ago.”

David Noble, group chief executive officer at the Chartered Institute of Procurement & Supply, said: “The General Election has given the sector pause for thought as procurement and supply management professionals reported a slowdown in the pace of new construction orders growth.

“Though the index still remains in positive terrain, this deceleration has been attributed to project delays and hesitancy as the country prepares to vote.

“Subcontractors continue to be the winners in ongoing work, being in short supply and demanding higher rates for their labour – rising at the swiftest pace for almost 20 years.

“However, the sector continued to gear up and increase in-house staffing levels to meet the needs of higher levels of investment and to increase capacity and capability levels in supply chains.

“With this slack in new pipeline orders, suppliers were able to improve their performance as well as increase levels of stock to lighten any log jam in the supply of raw materials.

“Though new business growth in the sector has slowed for eight months out of the last ten, business optimism is only slightly bruised and remains more solid than the average over the life of the index.”

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