By Ian McConnell

Business Editor

UK construction sector growth slowed sharply in August, amid “formidable” supply-chain pressures fuelled by Brexit and the coronavirus pandemic, as material and staff costs went “through the roof”, a key survey shows.

Expansion slowed last month across housebuilding, commercial property construction and civil engineering, the three sub-sectors covered by the survey from the Chartered Institute of Procurement & Supply and IHS Markit.

And CIPS warned of the impact of material and labour challenges faced by the construction sector on housing supply.

CIPS’s headline construction activity index fell from 58.7 in July to 55.2 in August on a seasonally adjusted basis.

Although the index remained significantly above the 50 no-change mark, the fall signalled a further sharp slowing of the rate of expansion.

Growth in July was significantly slower than in June, when the construction activity index was 66.3.

CIPS director Duncan Brock said: “Formidable supply-chain pressures restrained purchasing activity and building projects across the board in August as 68 per cent of construction companies reported even-longer delivery times for materials compared to July. A combination of ongoing Covid restrictions, Brexit delays and shipping hold-ups [was] responsible as builders were unable to complete some of the pipelines of work knocking on their door.”

He added: “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. Paying higher wages for experienced staff along with low stocks of materials at suppliers meant inflationary pressure rose at a rate almost on a par with June’s survey record. Eighty-four per cent of supply-chain managers reported paying more for their purchases.”

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Mr Brock highlighted his belief that the “obstacles” facing the sector would persist.

He said: “These obstacles to construction’s progress are set to continue and are now affecting last year’s strongest performer – housebuilding, which will exacerbate the problem of housing supply. However, optimism more than half of building firms believe that output will continue to rise in the year ahead.”

Overall employment in the construction sector continued to grow in August, the survey showed, but the rate of increase slowed to its weakest pace in four months and CIPS highlighted the impact of a lack of skilled workers in this context.

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Usamah Bhatti, economist at IHS Markit, said: “Evidence that the UK construction sector began to feel the impact of ongoing supply-chain disruption was widespread midway through the third quarter of 2021. Growth rates for overall activity as well as the three monitored sub-sectors eased further from the recent highs earlier in the summer. Similarly, new business inflows have continued to increase at a marked pace, yet even here the rate of growth has eased to a five-month low.”

He added: “Supply-chain disruption continued to disrupt activity across the UK construction sector, as demand for materials and logistics capacity outstripped supply. Average vendor performance continued to deteriorate at a near-survey-record rate, as firms noted severe shortages of building materials, a lack of available transport capacity and long wait times for items from abroad due to port congestion.”

Commenting on the employment picture, CIPS said: “Firms continued to note that strong market conditions had sustained demand for new employees, though additional cost burdens and a lack of skilled workers began to weigh.”

CIPS noted input-cost inflation had accelerated to the second-fastest rate in the 24-year history of the survey during August, surpassed only by the record rise recorded for June.

It added that concrete, fuel, steel and timber were the materials most commonly reported to have gone up in price.

Of the three sub-sectors, commercial property construction recorded the strongest increase in activity, even though its rate of expansion eased to the weakest in six months. Housebuilding was next fastest-growing and then civil engineering, which was the slowest-expanding sub-sector for a fourth consecutive month in August.