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Good Day and welcome to the latest Construction Insider Market Report for July 1st 2022

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It’s a very mixed bag of information, The opening is leaning towards positive but we really are getting some mixed messages. It’s quite a heavy report this time as we always have a cycle of Information that can sometimes take months to be officially published and we try to include as many of the indicators as possible. 

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We usually start with the Tier 3 and smaller contractor information for example has not been released this month but some over the counter sales metrics are included for you in this report which the BMI report is good at showing what the merchants are doing so we look for all these indicators. Until next month, take care from everyone at Saint.

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Project starts increased by almost a tenth in the three months to May, according to Glenigan.

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The construction industry analyst’s June Construction Review reported a 9% increase in underlying starts over the period. The rise comes on the back of a strong pipeline of planning approvals and contract awards, which has been building up over the past year.

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Projects starts were on the up in the three months to May, Glenigan said:

The three months to May also saw a 13% rise in detailed planning approvals against the previous three months, although main contract awards were down 18% against the previous year.

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Glenigans economic director Allan Wilen said the uptick pointed to “promising signs of recovery” for construction, as the sector “continues to reap the rewards of a strong development pipeline of contract awards built up since the pandemic”.

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While underlying project starts were up, the overall value of work commencing fell 5% to £6.54bn – a full 22% lower than the same three months in 2021.

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Project starts worth more than £100m accounted for much of this decline, dropping 32% against the previous three months and 31% against the same period last year. Major contract awards also fell year-on-year by a steep 49%. In the residential sector, project starts rose 24% against the preceding three months, largely driven by private housing (+45%). But the value of both overall residential (-24%) and private housing (-23%) projects starts was down on the previous year nonetheless.

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Social housing starts performed poorly – 32% down year on year – as did much of the non-residential sector, where office project starts fared the best, up 27% during the three months to May.

Trends and prices data dashboard

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Retail (1%) and health (8%) registered modest growth on the preceding three months but failed to improve on the previous year – retail declining a full 17%.

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Civil engineering was down 25% on last year and 5% on the preceding three months, largely due to a fall in utilities project starts, while infrastructure was down 24% and 6% respectively.

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After a strong start to the year, project starts in hotel and leisure dropped precipitously in the three months to May, plummeting 30%.

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The South-east posted the strongest regional results – with project starts valued at 30% higher than the previous three months, despite being 2% below 2021 output levels.

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Wales and the South-west also performed well, while the North-east faltered on its strong start to the year, project starts falling 18% against the preceding months.

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The latest market report from materials producers and builders merchants’ trade bodies reveals that average inflation for products and materials so far this year has been around 23%.

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It reported that manufacturers are warning of further price increases in the second half of the year for energy intensive products such as insulation, cement, concrete and many steel products.

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Some key products remain on allocation or continue to suffer extended lead times like bricks, air crete blocks, some roof tiles.  But the Construction Leadership Council’s Product Availability working group says there are now clear signs that supply bottlenecks are starting to ease.

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The CLC working group said looking ahead the cost of living crisis and structural skills gap in construction looked set to impact the industry heavily in 2023.

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In the group’s latest report it said: “There is now clear evidence that skills shortages are making some SME builders reluctant to take on projects, as they don’t have the trades to complete the work.

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“Recruitment, retention and related wage inflation continue to present serious concerns across UK construction and may supplant product availability issues in 2023 among the key risks facing the industry,” warns the report.

The group said there were now concerns that volatile inflation has led to the failure of relevant indices to reflect market reality. We have included all the major documents for this period below for you to review.

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As a result contractors were now engaging in dialogue with clients to use prime cost, provisional sums and target price-based contract mechanisms to mitigate the risks. 

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Monthly Construction Update Business Statistics Team 

The Office for National Statistics published estimates of construction output for April 2022 , this morning:

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• Monthly construction output decreased by 0.4% in volume terms in April 2022; this is the first monthly decline seen since October 2021. • The decrease in monthly construction output in April 2022 came from a fall in repair and maintenance (2.4%), which was offset slightly by a rise in new work (0.9%); the fall is partly a by-product of the growth (3.0%) in March 2022, because of the demand caused by the repair work resulting from storms in February 2022. 

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• At the sector level, the main contributors to the decline in April 2022 were private housing repair and maintenance, and private commercial new work, which decreased by 6.5% and 3.8%, respectively. 

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• Despite the monthly fall, the level of construction output in April 2022 was 3.3% (£481 million) above the February 2020 pre-coronavirus (COVID-19) level; new work was 0.7% (£68 million) below, while repair and maintenance work was 11.0% (£549 million) above. 

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• The recovery to date, since the falls at the start of the coronavirus pandemic, is mixed at a sector level, with infrastructure 35.6% (£669 million) above and private commercial 27.2% (£676 million) below their respective February 2020 levels in April 2022. 

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• Despite the monthly decrease, construction output increased 2.9% in the three months to April 2022; this is the sixth consecutive growth in the three-month on three-month series, with increases seen in both new work and repair and maintenance (2.2% and 4.0%, respectively). Construction output decreased by 0.4% in volume terms in April 2022 Gross Domestic Product fell by 0.3% in April 2022 The Office for National Statistics published estimates of GDP for April 2022 this morning: 

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• Gross domestic product (GDP) fell by 0.3% in April 2022, after a decline of 0.1% in March 2022; UK GDP increased by 0.2% in the three months to April 2022.

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• Services fell by 0.3% in April 2022 and these were the main contributors to April's fall in GDP, reflecting a large decrease (5.6%) in human health and social work, where there was a significant reduction in NHS Test and Trace activity.

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• Production fell by 0.6% in April 2022, driven by a fall in manufacturing of 1.0% on the month, as businesses continue to report the impact of price increases and supply chain shortages. 

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• Construction also fell by 0.4% in April 2022, following strong growth in March 2022 when there was significant repair and maintenance activity following the storms experienced in the latter half of February 2022.

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• This is the first time that all main sectors have contributed negatively to a monthly GDP estimate since January 2021. S&P Global (formerly IHS Mar kit) CIPS published their latest construction purchasing managers index for March 2022 on 8 th June 2022. 

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• The S&P Global / CIPS UK Construction Purchasing Managers’ Index (PMI) – which measures month-on-month changes in total industry activity – registered 56.4 in May, down from 58.2 in April and the lowest reading for four months. 

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• May PMI data signalled another growth slowdown in the construction sector amid a loss of momentum for the residential category. The latest rise in housing activity was the weakest since the recovery began two years ago. Survey respondents suggested the subdued consumer confidence and worries about the economic outlook had constrained demand.

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• Higher borrowing costs and intense inflationary pressures were also cited as factors likely to hold back growth over the next 12 months. The latest survey data indicated that business activity expectations at construction companies were the least upbeat since August 2020. S&P Global / CIPS UK Construction Purchasing Managers Index for April 2022 

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• Weaker trends in the house building sub-sector were the main brake on growth, with this index falling to 50.7 from 53.8 in April. Moreover, the latest reading signalled the worst performance for residential work since May 2020.

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• Commercial building was the fastest-growing segment in May (index at 59.8), with the speed of expansion easing only slightly since April. Construction companies noted strong demand for commercial work, despite a degree of hesitancy due to the uncertain economic outlook. 

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• Job creation accelerated slightly in May and was the strongest for four months. Survey respondents typically cited efforts to boost capacity and meet rising customer demand. There were again widespread reports citing recruitment difficulties due to shortages of suitably skilled candidates.

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• May data highlighted strong demand for construction products and materials, as signalled by a steep and accelerated rise in total purchasing volumes. Efforts to replenish stocks and pre-purchase ahead of price rises also contributed to higher purchasing activity in May, according to survey respondents.

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• There were positive signals for supplier performance in May, as delays were the least widespread since February 2020. Some firms noted an improvement in the availability of construction items, despite ongoing challenges including logistics bottlenecks, Brexit trade frictions and supplier staff shortages.

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• Rapid cost inflation persisted in May, with the vast majority of survey respondents (73%) reporting a rise in purchasing prices. This was linked to rising fuel, energy and raw material costs. That said, the overall rate of inflation eased to a three-month low. Building Materials The latest Monthly Statistics of Building Materials and Components were published by BEIS on 4 th June 2022. 

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• The material price index for ‘All Work’ increased by 25.2% in April 2022 compared to the same month the previous year. 

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• There was a 3.4% increase in seasonally adjusted brick deliveries in April 2022 compared to the same month the previous year. 

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• There was a 1.0% decrease in seasonally adjusted block deliveries in April 2022 compared to the same month the previous year. Business Insights and Impact on the UK economy The Office for National Statistics published Business insights and impact on the UK economy on 1st June 2022, based on responses from the voluntary fortnightly business survey (BICS) which was live between 16th May and 29th May 2022.

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• Between 16 and 29 May 2022, weighted by count, 88.5% of construction businesses reported they were currently trading, 8.5% reported having they were partially trading and 2.5% reported having permanently ceased trading. Equivalent all industry averages were, respectively; 85.5%, 8.4% and 2.6%. 

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• Around 4.7% of construction businesses currently trading reported expecting turnover to increase in June 2022, 59.9% reported expecting turnover to remain the same and 14.4% expected turnover to decrease. Respective all industry averages were 13.5%, 57.2% and 15.6%. 

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• In April 2022, weighted by count, 56.2% of construction businesses that had not permanently stopped trading reported an increase in the price of materials, goods or services bought compared to the previous month, whilst 24.5% of construction businesses reported no change in the price of materials, goods or services sold. The respective all-industry averages were 47.2% and 29.9%. 

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• In April 2022, weighted by count, 26.7% of construction businesses that had not permanently stopped trading reported an increase in the price of materials, goods or services sold compared to the previous month, whilst 49.8% of construction businesses reported no change in the price of materials, goods or services sold. The respective all-industry averages were 22.7% and 55.3%.

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• Around 34.2% of construction businesses that had not permanently stopped trading reported expecting the price of goods or services sold in June 2022 to increase, 36.8% expected them to stay the same and 1.6% expected them to decrease. The respective all-industry averages were 28.9%, 46.8% and 1.8%. 

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• Weighted by count, 34.2% of construction businesses that had not permanently stopped trading reported energy prices to be a factor causing them to consider raising prices in June 2022, 9.2% cited finance costs, 29.6% labour costs and 51.1% raw material prices. 

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• Around 9.2% of construction businesses, weighted by count, reported domestic demand had increased in April 2022 compared to the previous month, 52.1% reported demand had stayed the same and 8.8% reported demand had decreased. The respective all-industry averages were 9.0%, 45.6% and 16.

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• Between 16 and 29 May 2022, weighted by count, 4.5% of construction businesses reported increases in energy prices had affected production, 16.3% reported it had affected supplies and 8.7% reported energy price rises had affected both production and supplies. The respective all-industry averages were 6.1%, 12.8% and 14.3%. 

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• Between 16 and 29 May 2022, weighted by count, 3.8% of construction businesses reported having discontinued lines of sale due to price rises, 37.3% reporting having to absorb costs, 18.6% reported having to change suppliers, 1.7% reported having had to make redundancies and 34.1% reported having passed price increases on to customers. Construction Output Forecasts Experian published their Spring 2022 forecasts for the construction sector in May 2022. 

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• Total construction output in 2021 reached £169.6 billion (2019 prices), a close to 13% increase on the previous year, regaining most of the ground lost during the worst of the pandemic. The industry started 2022 well, with output up 8% in real terms in the first two months compared with the same period of 2021. Growth will slow, but the prognosis is one of expansion over the forecast period, averaging 3.7% a year. This would take output to £189.4 billion in 2024, over 7% above its pre-pandemic level in 2019. 

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• All the major construction sectors are projected to experience growth over the 2022 to 2024 period, but a handful are likely to remain smaller in 2024 than in 2019 – generally the public sectors, but also the private commercial one. • The top-level forecast for all construction work is for growth of 4.3% in 2022, down from 12.9% in 2021, and for growth of 3.8% and 3.1% in 2023 and 2024. 

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• Growth in new work is forecast at 4.4% in 2022 and 3.6% in 2023, down from 11% growth in 2021. The housing sector is forecast to grow by 4.8% in 2022 and 3.9% the following year. Growth in the nonresidential building sector is forecast to be 3.3% in 2022 and 4.5% in 2023. The private commercial subsector is expected to grow by 4% and 5% over the same period.

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• Repair and maintenance (R&M) is forecast to grow to be 4.2 in both 2022 and 2023, down from 16% last year. The Construction Products Association (CPA) published scenarios for construction as part of their analysis of the market impact in May 2022. 

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• The CPA forecasts that output in the industry will grow by 2.8% in 2022, down from the 4.3% growth forecast three months ago. The downward revision stems from concern around a host of price pressures arising from both local and global issues. 

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• Demand remains strong across the industry in Q2, and the current project pipeline suggests that this will support activity levels until at least 2022 Q3. 

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• Prior to the conflict in Ukraine, UK construction was already facing labour and product availability issues and the impact of reverse charge VAT and IR35. Rising energy costs were driving near-record price increases in construction products and the continued conflict exacerbates this issue. The impact of these pressures, and of more general rising costs, on demand will vary considerably by sector. The broad picture is one of positive market conditions in the short term with anticipation of tougher times ahead.

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• Private housing repair, maintenance and improvement, SMEs report that demand remains high, but this is the sector arguably most exposed to current price inflation, falls in consumer confidence and pressures on household incomes. Overall, output is expected to fall by 3% in 2022 and 4% next year from current all-time highs. 

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• Private housing, the largest construction sector, remains strong, with house builders reporting resilient demand. Longer-term, are questions over consumer confidence, but output in this sector is forecast to rise by 1% in both 2022 and 2023. This contrasts with the 3% per year growth forecast three months ago.

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• The fastest growth is expected in the industrial sector, in which output is forecast to rise by 9.8% in 2022 and 9.3% in 2023, due to a strong pipeline of warehouse projects, resulting from a long-term shift towards online shopping. • Infrastructure, traditionally less affected by immediate economic conditions, remains positive, with forecast growth of 8.8% in 2022 and 4.6% in 2023.

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• On the supply side, the main immediate impact of the war in Ukraine for construction products will be the knock-on from rising energy prices and commodity shortages. Soaring energy costs will have to be passed on and lead to sharp rises in the cost of energy-intensive products. This will affect both imported products such as aluminium and steel and locally sourced products such as bricks and cement. Contractors are likely to feel the pressure first, particularly those working to fixed-price contracts. For future projects, contractors will be forced to re-price, add fluctuation costs and introduce risk-sharing arrangements to deal with the uncertainty over potential cost inflation. Gross Domestic Product Forecasts The latest monthly Consensus Economics Forecast Survey (which uses an average of private sector forecasts) results were published in May 2022. 

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• The mean GDP forecast for 2022 is 3.8% growth, down from 3.9% in the previous month’s survey. • The mean GDP growth forecast for 2023 is 1.0%, down from 1.4% in the previous month’s survey. The OECD published their latest Economic Outlook in June 2022: 

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• Global GDP growth is projected to slow sharply this year, to around 3%, and remain at a similar pace in 2023. This is well below the pace of recovery projected last December. 

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• UK GPD is projected to grow by 3.6% in 2022, down from 4.8% in the December 2021 projection, and 0.0% in 2023. Bank of England Summary of Business Conditions The Bank of England published its most recent update to the Agents’ Summary of Business Conditions on 17 th March 2022, covering intelligence gathered mostly between mid-January and late February 2022.

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• Construction output growth remained modest as rising costs, and materials and labour shortages continued to weigh on activity, though order books remained strong. 

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• Contacts said that rising material and labour costs had caused delays to some projects as customers waited for costs to come down or had made some projects unviable. 

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• Lead times for many materials continued to be long, though availability had improved since Summer 2021, when shortages were at their most severe. Companies reported placing orders early and buying larger quantities of materials to limit the effect of shortages, though this was easier for larger firms than for smaller companies, because larger firms have more buying power with suppliers and generally have stronger financial positions. Builders Merchant Building Index The Builders Merchant Building Index for Quarter 1 2022 was published by the Builders Merchants Federation and GfK on 18th May 2022. 

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• Total Builders Merchants Quarter 1 2022 value sales were up 17.7% compared with Quarter 1 2021, with 11 of the 12 categories selling more; only Workwear & Safety Wear didn’t, remaining flat at -0.1%. • Total sales in Quarter 1 2022 were 24.7% higher than in Quarter 1 2019, with all categories selling more. Growth was driven largely by two categories: Landscaping (+51.4%) and Timber & Joinery Products (+40.6%). • Total sales in March 2022 were 9.8% higher than March 2021, with no difference in trading days. 11 of the 12 categories sold more. • Across all merchants, sales in March 2022 were 35.0% higher than in March 2019, with two more trading days. • Rolling 12 months: In the 12 months Apr 2021 to Mar 2022, Total Merchants sold 30.6% more than in the same period a year earlier.

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Growth in workload expectations slows

Data from the trades completing our Construction Market survey showed that while all expect growth in the next 12 months, most expect the pace of that growth to slow significantly. This is consistent with similar findings by the Office for National Statistics (ONS), the Construction Products Association (CPA) and IHS Mar kit. Our London Office Crane Survey highlights that construction levels continue to remain above the long-term ten-year average.

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In the chart, the arrows indicate the change over the past six months in predictions of the future workload level. All trades predict a rise in workload (all the blue dots are positive) but most predict that the rate of increase will slow.

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Anecdotal evidence indicates that starting new projects is being hampered by the volatility in market prices of materials and hence an inability or difficulty to agree fixed price contracts. The larger the project the greater the risk and therefore perhaps unsurprisingly, the new starts recorded in the crane survey data in this period are generally much smaller schemes.

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Trades are clear that prices are only going one way - up!

Sentiment around both costs and prices is very clearly moving upwards, and significantly. 12 months ago, trades were predicting an average rise over the following 12 months of around 3.4% for commercial office projects, and 3.0% for fit out projects. In our previous survey, six months ago, these numbers had increased to 8.1% and 5.9%, respectively. In our latest survey trades are predicting an increase of 10.8% for office projects and 7.6% for fit-out projects. The rate of increase for offices is higher as this reflects the exposure to significant increases in energy prices that affect materials such as the steel, cement and glass.

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The fixed price nature of many construction projects means that contractors are working on projects that they priced 12 or 18 months ago and are now facing thin or more likely negative margins, the impact of which may play out in the coming months. As described above, the ability to close out contract negotiations on new projects will inevitably lead to delays and/or the need to consider risk sharing between contractors and clients.

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The graph below shows the results from individual trades which again highlight significant increases in how trades perceive prices will change in the next twelve months. Prices are expected to increase by around 11% on average, up from 8% six months ago, similar to the figure for offices given below.

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So, what is driving the price increases? The chart above and the responses from trades make it clear that COVID-19 and Brexit are generally no longer the key reasons. While supply chain disruption due to strict COVID-19 lockdowns in countries like China are still relevant for some products, but increasingly the current price increases reflect the high energy intensity of manufacturing many construction materials and the associated significant increases in oil and gas prices.

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A potential strategy to avoid the worst impact of the price increases is to follow the sustainable route of refurbishment: keeping the energy intensive steel and concrete elements of existing buildings and hence reducing the embodied carbon impact of the scheme. This is reflected in our crane survey results for new starts, where the volume of refurbishments is broadly consistent with the last two surveys whereas new-build new starts are much reduced this time.

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Survey responses as well as industry news have tended to focus on price increases for materials as these have been far more volatile. More domestic inflationary pressures may become apparent in labour costs if workload levels continue to grow across the construction industry, as our survey suggests.

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Construction Product Availability Statement - 28 June 2022

Total value sales data from Britain’s Builders’ Merchants shows Q1 2022 was a bumper quarter thanks in part to a record-breaking March, which clocked up the highest ever total sales in the history of the BMBI. However this was driven once again more by price inflation (+16.0%) than volume growth (+1.5%).

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Quarter 1 2022 total value sales were 17.7% higher than Q1 2021, with no difference in trading days. All bar one categories sold more. Renewables & Water Saving (+29.3%) did best, followed by Kitchens & Bathrooms (+26.3%) which also recorded its best-ever quarterly sales. Timber & Joinery Products (+21.4%) and Heavy Building Materials (+17.4% in value) grew more slowly while its volume is up by 5.0%. Plumbing, Heating & Electrical (+16.4%) and Miscellaneous (+12.8%) both had their best-ever quarterly sales. Workwear & Safety wear (-0.1%) was flat.

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Comparing Q1 2022 with Q1 2019, a pre-pandemic year, total value sales were 24.7% higher, with no difference in trading days. All categories sold more including Landscaping (+51.4%) and Timber & Joinery Products (+40.6%), which did particularly well. Heavy Building Materials (+18.9%), Kitchens & Bathrooms (+17.8%) and Plumbing, Heating & Electrical (+11.2%) all grew more slowly.

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Quarter-on-quarter, sales were up 11.4% in Q1 2022 compared to Q4 2021, helped by three more trading days in the most recent period. All categories sold more including Renewables & Water Saving (+28.1%) and Landscaping (+26.2%). Tools (+13.3%), Plumbing, Heating & Electrical (+12.5%) and Heavy Building Materials (+11.9%) all grew faster than Merchants overall.

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Like-for-like sales were 6.1% higher than in Q4 2021. March was a bumper month, with total value sales 24.1% higher than February, boosted by three extra trading days in the most recent month. Seasonal category Landscaping (+47.2%) outperformed the other categories, while Heavy Building Materials grew by (+24.5%). Workwear & Safety wear (+9.7%) had the slowest growth. Like-for-like sales were 7.9% higher.

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Compared to March 2021, when large parts of the country were again under Covid restrictions, total sales were 9.8% higher in March 2022 with no difference in trading days. This was driven entirely by price inflation (+18.5%) rather than volume (-7.3%). Eleven of the twelve categories sold more with Kitchens & Bathrooms (+25.2%), Plumbing, Heating and Electrical (+16.3%), Heavy Building Materials (+10.5%), Decorating (+7.8%), Ironmongery (+5.9%) and Tools (+2.8%) all having their best-ever month since the BMBI started in July 2014. Only Landscaping (-1.1%) sold less.

Total value sales in March 2022 were 35.0% higher than the same month three years ago, helped by two more trading days this year. All categories sold more, with Landscaping (+64.1%) and Timber & Joinery Products (+50.7%) performing the best. Like-for-like sales were 23.3% up.

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Mike Rigby, CEO of MRA Research who produced this report, said: “It’s been an uncertain start to 2022 with the outbreak of war in Ukraine further impacting energy costs and inflation. But the quarterly figures suggest that – for now at least – the building sector is holding its resolve. With rising costs and another round of energy price increases looming, there may be clouds on the horizon but with geopolitical circumstances changeable, there is little way of knowing exactly what Q2 will bring.”

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Developed and run by MRA Research, the BMBI – a brand of the Builders Merchant Federation – is a monthly index of builders’ merchant sales, and the most reliable, up-to-date measure of Repair, Maintenance, and Improvement (RMI) activity in the UK. The index is based on actual sales from GfK’s Builders’ Merchant Point of Sale Tracking Data, which captures value sales out to builders from generalist builders’ merchants, accounting for over 80% of total sales from builders’ merchants throughout Great Britain. An in-depth review, which includes commentary by sector experts, is provided each quarter.

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S & P / CIPS Report

A strong pipeline of construction projects and efforts to boost stocks where possible resulted in a steep rise in purchasing activity.

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S&P Global / CIPS UK Manufacturing PMI

• Weakest rise in new work since December 2021
• Total construction output expands at slower pace in April
• Growth projections ease to lowest since September 2020

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UK construction companies reported another strong rise in business activity during April, but the speed of recovery lost momentum amid weaker new order gains. Survey respondents noted that higher costs and worries about the economic outlook had started to act as a brake on demand.

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Signs of a slowdown in client spending contributed to another drop in growth expectations, with the degree of optimism about future workloads the lowest since September 2020. At 58.2 in April, down from 59.1 in March, the headline S&P Global / CIPS UK Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry activity – signalled the weakest rate of output growth since January. The index has nonetheless posted above the crucial 50.0 no-change mark in each month since February 2021.

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Of the three main construction segments monitored by the survey, the fastest-growing remained commercial work (index at 60.5), followed by civil engineering (56.2). Construction firms cited pent up demand for commercial projects and spending related to COVID-19 recovery plans. Meanwhile, major infrastructure schemes such as HS2 were reported as factors helping to boost civil engineering activity.

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Residential work remained the worst-performing sub-sector in April and saw the greatest loss of momentum (53.8 vs. 54.9 in March).The near-term outlook for construction activity deteriorated in April as total new order volumes expanded at the slowest rate for four months. Escalating raw material prices and, in some cases, hesitancy due to higher borrowing costs and geopolitical uncertainty were reported as headwinds to demand.

While tender opportunities diminished in April, the need to deliver forthcoming projects and rebuild business capacity contributed to another round of job creation in April.

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Moreover, the rate of employment growth hit a three-month high. A strong pipeline of construction projects and efforts to boost stocks where possible resulted in a steep rise in purchasing activity. Higher levels of input buying have been recorded in each month since June 2020. Suppliers once again struggled to keep up with demand for construction products and materials. Around 45% of the survey panel reported longer lead times, while only 2% noted an improvement. The resulting index measuring suppliers' delivery times across the construction sector signalled a sharper downturn in performance than in the previous month.

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Supply chain delays were attributed to shortages of staff, materials and transport, with these difficulties often exacerbated by delays at ports and the war in Ukraine. Higher prices paid for energy, fuel and raw materials led to a steep increase in average cost burdens during April. Survey respondents also noted that the removal of red diesel subsidies had pushed up costs. The overall rate of purchasing price inflation accelerated to its fastest since September 2021. Looking ahead, the percentage of construction companies forecasting an upturn in business activity during the next 12 months (43%) continued to surpass those expecting a fall (12%). The gap narrowed again in April, however, and as a result the Future Activity Index dropped to a 19-month low.

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Construction companies cited risk aversion among clients and persistently high inflation due to energy price rises. There were also concerns about squeezed household incomes and rising borrowing costs.

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Tim Moore, Economics Director at S&P Global, which compiles the survey said:

"The construction sector is moving towards a more subdued recovery phase as sharply rising energy and raw material costs hit client budgets. House building saw the greatest loss of momentum in April, with the latest expansion in activity the weakest since September 2021. Commercial and civil engineering work were the most resilient segments, supported by COVID-19 recovery spending and major infrastructure projects respectively.

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"Construction companies have built up strong order books since the reopening of the UK economy, which led to another round of rising employment in April and these project starts should keep the sector in expansion mode during the remainder of the second quarter.

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"However, tender opportunities were less plentiful in April as rising inflation and higher borrowing costs started to bite. Consequently, longer-term growth projections have slumped from January's peak, with business optimism now the weakest since September 2020."

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Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said:

"A slowdown in output growth amongst builders in the UK has highlighted a number of issues to be concerned about including rising costs, shortages and a hesitancy amongst customers.

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"New order levels rose at the slowest pace since the end of last year. There were fears around disrupted supplies as 45% of supply chain managers reported longer lead times. To counteract some of these challenges and with an eye on the future, supply chain managers were building stocks resulting in another sharp rise in purchasing activity.

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"Inflation hit the highest rate since September 2021, impacted on budgets and made customers think twice about committing.

Job creation grew quickly to complete work in hand, risking over-inflating capacity should new order growth slow further. With the Bank of England confirming the interest rate as the highest for 13 years, the squeeze on business lending also led to a relatively gloomy outlook amongst builders for the year ahead, with sentiment the lowest since September 2020." 

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Quarterly Overview - Q1 2022- Emile van der Ryst, Senior Client Insight Manager - Trade, GfK

2022 was thrown into complete turmoil at the end of February when Russia did the unthinkable and invaded Ukraine. The horrifying human cost and tragedy seen since then has created even more difficulty for the global economy. Growth forecasts have been revised down and there’s widespread commentary around financial pressures, cost of living and expected food shortages.

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Against this sombre backdrop there’s the acceptance that day to day life in the UK will become much more challenging in the next couple of years. This will of course influence construction and trade, either through less contracted work, price increases or supply chain issues. For now, the first quarter of 2022 has shown value growth, up by 17.7% against 2021 Q1. Almost all of this is driven by price increases, with volume only up by 1.5%.

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From 2021 Q1 to 2022 Q1 Heavy Building Materials is up by 17.4% in value, but its volume is only up by 5.0%. Within this category all of Blocks, Bricks, Cement, Plasterboard and Roofing Products saw its highest average quarterly price to date.

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Timber & Joinery is even more affected by pricing, with value up 21.4% and volume down by -11.3%. This price increase of 36.9% from 2021 Q1 shows the current reality of the Timber & Joinery market, but it’s important to mention that pricing has seen a decrease of -6.7% against 2021 Q4, so it might have already peaked. Landscaping, as the final core category, has seen a value increase of 14.4%, with volumes down by -3.5%.

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Outside of the core categories the light side has seen its best performing value quarter to date. Most of this is again influenced by pricing, with the highest average price on record seen for Ironmongery, Tools, Workwear and Safety wear and Plumbing, Heating and Electrical. The latter has seen value growth of 16.4% and has benefitted from both volume (+5.6%) and pricing (+10.2%) growth against 2021 Q1.

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That's a Wrap! 

A lot of points have been covered and I hope this information in the report has been of some use to you. We do try to collate information from as many different areas as possible so please do refer to last months report as well for a crossover of information as some data sets are released at different intervals through out the year.

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We will see you again soon! 

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If you are already a client of Saint, please feel free to discuss with your business development manager to discuss this report and to provide specific data for your sector.

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