Materials price hikes hit UK construction profits

By Mike Hayes06 May 2022

The S&P Global/CIPS UK Construction PMI (Purchasing Managers Index) fell to a three-month low of 58.2 in April, from 59.1 in March, reports Trading Economics.

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While strong growth continues in construction, the new order volumes have expanded at their slowest rate for four months; This is due to a number of factors, including the sharp rise in raw material prices, higher borrowing costs and uncertainty regarding the conflict in Ukraine.

The conflict has also contributed to supply chain delays, with shortages of staff, materials and transport all causes for ongoing concern.

Average construction costs have also increased sharply due to the rise in energy, fuel and materials costs.

While job growth rose to a three-month high, projections for growth in the sector eased to their lowest level since September 2020.

SMEs at risk

Brendan Sharkey, head of construction and real estate at UK accountancy group MHA,, said, “The UK construction sector continues to ride a wave of strong demand. However, construction work is now less profitable due to inflation and interest rate rises. Russia’s invasion of Ukraine continues to be responsible for some staggering prices increases. We’ve seen the price of certain raw materials surge by 20% or more within a month.

“Hopefully employers and larger construction firms will be sympathetic to the struggles of smaller businesses. If they are not, we may see more than a few casualties. In the long term, the sector may experience a decline in new civil engineering, commercial and industrial projects as businesses and investors start to hold back on new orders until price stability returns and there is more economic certainty.”

Resilient sector

Ian Cooper, director and head of construction at legal and business services firm DWF, said, “The data shows the continuing trend of increasing sector activity, yet confidence is heading in the opposite direction as a result of uncertainty.

“Costs are increasing dramatically with some suppliers only guaranteeing the price for 24 hours. With construction’s already poor reputation for constraining costs, we now have a situation where costs are guaranteed to rise. The question is how much? The answer is nobody knows.

“Construction investors will have to take risks, or delay decisions until the market stabilises. However, we know from experience that the construction industry is very capable of accepting these uncontrollable factors in pursuit of turnover.”

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