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.
Input Cost Inflation Hits Highest Since June 2022
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.
PMI Falls to 39.7, Contraction Continues
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.
Middle East Conflict Weighs on Industry
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 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 about 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 Delays and Staffing Issues
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 companies to not replace staff who voluntarily left, the PMI survey said.
Profit Warnings and Challenging Trading
This month UK housebuilders Crest Nicholson and Berkeley both issued profit warnings, citing the Iran war for increasing costs and reducing demand. Travis Perkins, the UK’s largest builders’ merchant, said last week that trading in the first quarter of the year had been “challenging”, with revenue down 1.7%, “as construction activity levels remain subdued”.
