UK building firms hit by Brexit-related supply chain issues

Construction industry says cost of materials is rising at among the fastest rates since the 1990s

First published on Mon 6 Sep 2021 06.11 EDT

Severe shortages of building materials dragged down activity in the UK construction industry last month, in the latest sign of Covid and Brexit disruption hitting Britain’s post-lockdown economic recovery.

Construction firms said the cost of materials was rising at among the fastest rates since the 1990s, as severe and sustained supply chain issues held back growth across the industry, according to a closely watched survey of the industry.

The latest snapshot from IHS Markit and the Chartered Institute of Procurement and Supply (Cips) revealed a decline in growth across housebuilding, commercial work and civil engineering as the restricted supply of materials and transport issues began to weigh on overall construction activity.

The monthly purchasing managers’ index (PMI) fell to 55.2 in August, down from 58.7 in July on an index where anything above 50 separates growth from contraction. City economists had forecast a reading of 56.9.

Duncan Brock, the group director at Cips, said: “A combination of ongoing Covid restrictions, Brexit delays and shipping hold-ups were responsible as builders were unable to complete some of the pipelines of work knocking on their door.

“Material and staff costs went through the roof as job hiring accelerated to fill the gaps in capacity left behind by employee moves, overseas worker availability and brought on by skills shortages.”

Business leaders are warning chronic shortages of workers and key materials are beginning to weigh on Britain’s economic recovery from the winter lockdown, with disruption to global supply chains caused by the pandemic exacerbated by Brexit migration rules and border controls introduced at the start of the year.

It comes amid growing warnings that higher costs facing industry are likely to be passed on to British consumers in the form of higher prices for a range of goods and services.

The Bank of England forecasts inflation will rise to 4% this year, the highest level for a decade, before then fading closer to its target rate of 2% as temporary problems linked to the pandemic ease. However, some economists warn the rate of inflation could remain elevated as temporary disruption persists.

Construction firms said their costs rose at the second-fastest rate in the 24-year history of the PMI survey, surpassed only by a record rise in June 2021. Among those materials reported as up in price, the most common were concrete, fuel, steel and timber.

Businesses noted a continued resumption of projects that had been delayed because of Brexit and Covid, but said client confidence was being hit by shortages of raw material supplies and increased cost burdens.

Economists said EU workers returning home during the pandemic had reduced the availability of workers, while a synchronised global recovery from the crisis had led to soaring demand for construction materials.

Jan Crosby, the head of infrastructure, building and construction at KPMG UK, said the scale of the HS2 rail project was acting as a magnet for some elements of the supply chain, including heavy equipment and cement.

“A perfect storm continues to hamper availability of materials and labour across the sector in the UK,” he said. “The industry is telling us that this is one of their biggest concerns right now, and that supply chain delays are preventing them from taking on new work to grow their construction businesses at a time when the economy is bouncing back.”

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