Supply chain pressures intensify as construction output rises

Sharp rises across all three categories of construction activity in August has led to greater strains on supplier capacity, industry data has suggested.

Supply chain pressures intensify as construction output rises

Construction output grew at its fastest pace for seven months, driven by a strong rise in housing, commercial and civil engineering activity.

At 64.0 in August, up from 62.4 in July, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) remained well above the neutral 50.0 threshold.

The latest reading also pointed to the second-strongest rate of output expansion since the pre-recession peak seen in August 2007.

However, survey respondents widely commented that low stocks and capacity pressures had resulted in worsening supplier performance. Delivery times from vendors lengthened to the greatest degree since the survey began over 17 years ago.

Strong gains in incoming new work were recorded during August, extending the current period of continuous new business growth to 16 months. Construction firms hired staff at a strong rate in August, with the pace of job creation only slightly less marked than the survey-record high seen in July. Moreover, sub-contractor usage picked up sharply and at the fastest rate since the survey began in April 1997.

Tim Moore, author of the survey, said: “A broad-based upturn in construction demand has created a boom in job creation this summer, as construction companies look to replace capacity lost in the aftermath of the recession.

“However, acute skill shortages meant that sub-contractor charges rose at the fastest pace since the survey began in 1997. Meanwhile, sub-contractor availability fell at a survey-record pace, which could act to further ignite pay pressures in the short term.

“Supply chain pressures intensified during August, as falling stocks and strong demand for inputs contributed to the steepest lengthening of vendor delivery times since the survey began 17 years ago.

“While some survey respondents noted optimism that additional supplier capacity will come online over the near term, construction companies were generally less sanguine in relation to their staff hiring difficulties, reflecting concerns about protracted growth pains in this area.”

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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