Construction PMI: Easing supply chain pressures set to roll into reverse says RSM UK

The rapidly changing geopolitical landscape will fuel a re-emergence of supply chain pressures within the UK construction sector, reversing what has been a gradual improvement since Q3 2021 says RSM UK. This will further exacerbate pre-existing labour shortages, pricing and project delays.

According to the latest PMI data by IHS Markit and CIPS, February PMI business activity gained momentum across the UK construction sector. The headline seasonally adjusted Total Activity Index registered 59.1 in February, up from 56.3 in January to signal a robust and accelerated rise in output volumes. Business activity in the construction sector saw an uptick for the thirteenth consecutive month in February. All that is now set to change.

Kelly Boorman, partner and national head of Construction at RSM UK, said: ‘In the short-term output and demand has increased more than expected, but the longer term view is that while supply chain pressures have been gradually fading, this trend is set to reverse sharply. Whilst the UK has little to no exposure to basic building material imports from Russia or Ukraine, many businesses will nonetheless need to check and adjust to any downstream supply issues.

‘On the flipside, the construction pipeline remains strong with regards output, but supplier delivery times continue to present challenges. This, coupled with the pressures presented by volatile contract pricing and labour shortage, will contribute to an increasing number of projects stalling in 2022. 

‘Supply cost increases have slowed. However, this trend too will see a shift as price-spikes become more prevalent, partly fuelled by a dip in business sentiment. Contractors will need to remain in tune with fluctuating conditions to reprice their bids accurately.’

Thomas Pugh, economist at RSM UK, added: ‘’The dramatic surge in the prices of energy and many other commodities over the last week will push inflation to a peak of around 8% in April and means inflation will probably average around 6% in 2022. What’s more, there are signs that shipping costs are surging once again, which could feed into higher transport costs and delivery delays. 

While households balance sheet are much stronger than before the pandemic, giving them some scope to absorb higher prices, the scale and breadth of the rise in prices combined with lower consumer and business confidence and tighter financial conditions, mean that we now think GDP growth in 2022 could be just 3.75%, compared to 7.2% in 2021.’