Thu. Jul 7th, 2022


Business confidence in the construction sector fell to a 17-month low in March, according to a closely watched survey, reflecting growing concerns of UK companies about the impact of the worsening cost of living crisis.

The pessimistic outlook contrasted with new orders rising in March, with the proportion of business leaders reporting growth reaching the highest level since August 2021, according to S&P Global / Cips UK Construction Purchasing Managers’ Index.

The drop in sentiment was in line with a similar trends in the March PMIs for the UK services and manufacturing sectors.

Economists said the fall in confidence suggested that the boost to the economy from the removal of almost all Covid-19 restrictions in the UK over the past month could be limited by the worsening cost of living crisis and supply chain disruption.

Tim Moore, economics director at S&P Global, said businesses were unsure about how long the economic rebound would continue following the fastest rise in costs in six months. Data from the Office for National Statistics showed that the consumer price index rose at an annual rate of 6.2 per cent in February, the highest since 1992, up from 5.5 per cent the previous month.

“Intense inflationary pressures appear to have unnerved some construction companies,” Moore said.

He said reports of improved order books indicated “strong underlying momentum” in construction, adding that he expected the recovery to continue.

A majority of managers also reported an increase in overall activity last month with the headline PMI reading for March at 59.1. The figure, unchanged from February, indicated the joint fastest rate of output growth since last June, Cips said.

But it also masked big differences between parts of the industry, with commercial projects recording the fastest rise with a PMI reading of 60.8, while residential building – slowed by concerns about input costs – reported a PMI of 54.9.

The 150 construction companies that took part in the survey reported a “rapid rise” in average cost burdens, with a third saying they had experienced longer wait times for deliveries.

Duncan Brock, group director at Cips, said the “crippling rise” in inflation was most keenly felt in the price of raw materials and transportation, and companies were braced for more disruption due to the war in Ukraine.

“With these severe challenges, it is no surprise that business optimism for the months ahead has been affected and fell to levels last seen in October 2020,” Brock said.

Survey respondents also noted a difficulty filling vacancies, leading to the pace of job creation easing to its weakest so far this year.

Martin Beck, chief economist at EY ITEM Club, said construction had seen another month of “growthflation”, as stronger than expected activity was offset by increases in prices, logistics difficulties and capacity constraints.

“As cost and price pressures build further, activity growth risks weakening as high inflation drags on spending power and elevated uncertainty discourages some investment,” he said, adding: “Resilience is likely to be tested over the next few months.”



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