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The Guardian World1 min read
UK construction firms face sharpest rise in costs in nearly 30 years
TL;DR
UK construction firms are facing the sharpest cost increases in nearly 30 years due to rising fuel and raw material prices linked to the war in Iran. The purchasing managers’ index for construction activity dropped to 39.7 in April, indicating a contraction in the sector.
Key points
- UK construction firms face sharp cost rises
- Costs driven by war in Iran affecting fuel and materials
- PMI for construction activity fell to 39.7 in April
- Input cost inflation highest since June 2022
- No growth in construction sector since January last year
Construction companies in the UK are experiencing some of the sharpest cost rises in nearly 30 years as the war in Iran drives up prices for fuel and raw materials, according to a closely watched survey.
The poll of UK construction companies found that input cost inflation – which accounts for expenses such as raw materials, energy and labour – rose last month to the highest level since June 2022 when there was a spike in commodity prices caused by Russia’s invasion of Ukraine.
April’s jump in purchasing prices was also one of the steepest since the survey began in 1997.
The monthly purchasing managers’ index (PMI) for construction activity, considered one of the best indicators of growth in the sector, fell to 39.7 in April, the lowest level since last November and down from 45.6 in March.
Readings above 50 represent growth and anything below a contraction. The index had not shown growth since January last year.
Construction is one of the largest sectors of the UK economy, making up about 7% of GDP and employing more than two million people. A key promise of the Labour government had been to “get Britain building again” with a focus on boosting infrastructure projects and building 1.5m more homes by 2030.
However, the sector has been struggling with subdued demand, an ageing workforce and higher costs over the past two years. The conflict in the Middle East is now further weighing on the industry by causing increased business uncertainty and higher costs.
Tim Moore, the economics director at S&P Global Market Intelligence, which compiles the PMI survey, said: “A rapid acceleration of input cost inflation was seen across the UK construction sector in April.
“Aside from the post-pandemic surge in input prices from early-2021 to mid-2022, the latest rise in purchasing costs was the steepest in three decades of data collection.”
Moore added that around two-thirds of companies surveyed reported “higher cost burdens” in April and said this was “overwhelmingly” linked to their suppliers passing on higher fuel costs as a result of the war and strait of Hormuz shipping blockade, and subsequent rises in prices for raw materials.
Delivery times from vendors also rose at the sharpest pace since December 2022 due to international shipping delays and difficulties importing materials from the Gulf region.
Construction companies said new work was not coming in to replace completed projects and sales conversion times were taking longer. The lack of new projects had led a number of firms to not replace staff who voluntarily left, the PMI survey said.
Q&A
What is causing the rise in construction costs in the UK?
The rise in construction costs in the UK is primarily driven by increased prices for fuel and raw materials due to the ongoing war in Iran.
How significant is the recent increase in construction costs?
The recent increase in construction costs is the sharpest seen in nearly 30 years, marking one of the steepest jumps in purchasing prices since the survey began in 1997.
What does a purchasing managers’ index (PMI) below 50 indicate for the construction sector?
A purchasing managers’ index (PMI) below 50 indicates a contraction in the construction sector, with the latest reading at 39.7 showing no growth since January of the previous year.
