UK construction activity grows at fastest rate since 1997

LONDON: Britain’s construction industry recorded its fastest growth in 24 years last month, bolstered by a jump in demand for new homes and commercial property, but the sector was beset by a record rise in the cost of raw materials. The monthly purchasing managers’ index data underscored the speed of Britain’s broader economic rebound as coronavirus restrictions ease, and also how bottlenecks in supply chains are creating inflation pressures.

The IHS Markit/CIPS construction PMI jumped to 66.3 in June from 64.2 in May, its highest since June 1997 and above all forecasts in a Reuters poll of economists. Britain’s housing market has been boosted by a tax break for home-buyers which finance minister Rishi Sunak is due to phase out by the end of September.

The PMI’s input cost component was the highest since the series started in April 1997, and delivery times were the longest on record too. “Supply chains once again struggled to keep up with demand for construction products and materials,” IHS Markit’s economics director Tim Moore said. The Bank of England last month said it expected inflation to peak above 3% but it predicts the bottlenecks that are partly behind the rise will prove temporary.

Construction slumped at the start of the Covid-19 pandemic but recovered faster than other parts of Britain’s economy as it was less affected by social-distancing restrictions and benefited from booming house prices. Official data showed that construction output in April was slightly above its pre-pandemic level.

Confidence among purchasing managers remained high but weakened to its lowest since January, partly due to rising costs and difficulties hiring construction workers.

“Escalating cost pressures and concerns about labour availability appear to have constrained business optimism at some building firms,” Moore said.

Separate PMI data for the private sector as a whole, which includes the much larger services sector and manufacturing, showed a small fall to 62.6 in June from May’s record-high 63.0.