UK construction sector continues to recover in December

The UK construction sector continued to bounce back in December, but stretched supply chains and delays at UK ports resulted in the fastest rate of input cost inflation since April 2019

UK construction companies recorded a sustained rebound in business activity during December, according to the latest PMI® by IHS Markit/CIPS UK.

Stronger order books helped drive the recovery across the UK construction sector, with survey respondents often citing work on projects that had been delayed earlier in 2020.

Increased levels of demand led to a slight rise in employment numbers and greater demand for construction inputs in December.

However, strained supply chains and delays at UK ports resulted in longer delivery times and the fastest rate of input cost inflation since April 2019.

The figures

The seasonally adjusted UK Construction Total Activity Index posted 54.6 in December, little-changed from 54.7 in November and above the 50.0 no-change threshold for the seventh consecutive month.

Increased construction activity reflected another upsurge in housebuilding during December (index at 61.9). Commercial activity also expanded (51.2), but the rate of growth eased to its lowest since the recovery began last June.

Civil engineering was the weakest-performing category (48.0), with activity falling for the fourth time in the past five months.

Thanks to improving client demand and a boost from new business wins on construction projects that had been deferred at the start of the pandemic, total new orders increased at a strong pace in December.

Growing workloads contributed to an increase in purchasing activity at the end of 2020, with the rate of expansion holding close to November’s six-year high.

Purchasing prices rose at the steepest pace for just under two years, reflecting supply shortages and strong demand for construction inputs. Survey respondents often cited rising prices for timber and steel.

‘Post-Brexit disruption remains an ever-present threat’

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “Some positive news for the construction sector in December as the uplift from summer’s close continued through to the end of 2020 and new order levels increased for the seventh successive month.

“Long-term prospects came to fruition and halted projects started again as clients became more optimistic after the Covid hiatus. To meet this demand head-on, builders opted for job creation for the first time in 21 months to increase previously pared-back capacity.

“Further down the line, with purchasing growth close to its highest for six years, supply chains were groaning at the seams and delivery times increased to the most dramatic extent for six months.

“Low availability for finished products and raw materials as a result of port disruptions added to builders’ woes as suppliers named their price for goods in acutely short supply and input price inflation increased to its highest level since April 2019.

“Once again residential building was the strongest sector and construction companies focussed on this segment seem resilient for now.

“As the appetite for building resources grows in the first quarter of the year however, suppliers will find it difficult to ramp up production quickly to pre-pandemic levels, so we could see even longer delivery times potentially delaying some building projects as post-Brexit disruption also remains an ever-present threat.”