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Embracing technology and new materials: Constructing the supply chains of the future

The construction sector has been experiencing record demand for new projects across the built environment spectrum. With the ‘levelling up’ agenda, the New Homes target of 300,000 homes per annum, investment in crucial infrastructure such as HS2 and delayed projects because of covid, the sector has seen significant output growth.

However, with the current geopolitical context and access to labour issues, coupled with global supply chain issues, it is not all plan sailing for the industry.

If we look at the sector’s direct exposure to the Russia-Ukraine conflict, in 2018 construction businesses imported just 1.5 per cent of goods and services from Russia. This is compared to an average of 4.39 per cent in the Euro zone, with percentages hitting 5-7 per cent from eastern European nations . While businesses and the sector are thankfully not directly dependant on Russian markets, there remains uncertainty in supply chain networks due to longer lead times, soaring energy prices, inflation and interest pressures and repayment of various government funding related to the pandemic.

How is the sector performing?

The construction sector has proven itself resilient in its delivery and operations over the course of the pandemic so far. However, the sector is not immune to macroeconomic forces, such as inflation and the threat of economic recession. In June 2022, the volume of monthly construction output decreased by 1.4 per cent, following an upwardly revised 1.8 per cent increase in May 2022. This is the first decrease since October 2021 (0.9 per cent) following seven consecutive months of growth, according to the latest Office of National Statistics figures.

A combination of migration policy changes and lockdowns have further exacerbated a key challenge for the sector. While government funding has increased in apprenticeships and skills investment, it will take time for these investments to bear fruit, leaving construction businesses struggling to access the necessary on-site labour.

Material inflation

The availability and supply of materials for construction purposes has been inconsistent, at best, over the last two years. What has been consistent, unfortunately, has been the rise in cost of crucial materials which have been exacerbated by global crises impacting supply. For example, since April 2021, the price index for fabricated structural steel has risen from 157.2 to 262.1, with cement, plywood and concrete reinforcing bars also seeing dramatic price rises.

The trade deficit of construction materials has risen from £9.2m in 2020, to £11.6m in 2021. The deficit in Q1 2022 is also significantly ahead of Q1 2021, rising from £2.6m to £4.1m, so this gap is expected to widen further still over the course of this year.

Interestingly, there has been a marked rise in import values of prefabricated buildings materials, with an aggregated rise across all materials for prefabricated buildings of 47 per cent in two years from 2019-2021. In the context of disrupted supply chains, this represents a change of approach from some construction businesses.

Future predictions

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