Building reaches a 7-year high but squeezed
supply chains could constrain growth long term

Construction companies attributed the surge in
order books to strong demand for residential building work following the
introduction of a stamp duty holiday in July 2020 © Luke MacGregor/Bloomberg
UK construction registered “a phenomenal
acceleration in growth” in May driven by demand for new housing, but severe
supply shortages could constrain activity in the long term, according to new
data.
Construction companies attributed the surge in
order books to strong demand for residential building work following the
introduction of a stamp duty holiday in July 2020, which removes tax for home
buyers on their first £500,000 spent.
Duncan Brock, group director at the Chartered
Institute of Procurement and Supply, said the construction sector posted “a
phenomenal acceleration in growth” as new orders filled in at the fastest rate
for almost a quarter of a century.

Tim Moore, economics indices director at IHS
Markit, said builders had also reported widespread shortages of construction
materials.
Andrew Wishart, property economist at Capital
Economics, said that “materials shortages may start to cap construction
activity in the near term”, but added that house building should remain robust
because of the backlog of demand.
The report noted that “severe supply
shortages”, coupled with surging demand, had pushed the rate of input price
inflation to its highest since data collection records began.
The IHS Markit/Cips purchasing manager index
for the construction sector rose to 64.2 in May, up from 61.6 the previous
month, its strongest rise in nearly seven years.
The PMI beat forecasts by economists polled by
Reuters who had expected 63.2, and surpassed the 50 mark, which indicates that
a majority of businesses report an expansion compared with the previous month.

Commercial building was the second best
performing sector with work increasing at its steepest pace since August 2007,
following strong demand after the reopening of customer-facing areas of the UK
economy.
Civil engineering activity also increased
sharply in May, but at a slower pace than in the previous month and less than
in the other sectors.
The strong rise in construction workloads
resulted in a marked rise in staffing numbers, with the rate of job creation
increasing to the fastest since July 2014. The report also noted that the use
of subcontractors increased at a record pace.
Gareth Belsham, director of Naismiths, the
national property consultancy and surveyors, said: “Demand has gone from hot to
white hot. Across the industry, builders are making up for lost time and
buckling up for a full-on boom.”
Suppliers’ delivery times grew sharply in May,
suggesting shortages in material supply chains, at a pace not registered since
April 2020 when most businesses in the UK and Europe were shut as a result of
coronavirus lockdown restrictions.
PMIs data released this week showed that
activity in other parts of the economy such as services and manufacturing has
broken 24-year records since survey began.
Martin Beck, economist at Oxford Economics,
said the data showed “a revival in the economy is in full swing looks
undeniable”.
Financial Times