Lack of skilled workers and materials shortage hits the Construction sector in November

Growth momentum softened across the UK construction sector in November, with output, new business and employment all rising at slower rates than in the previous month. At 55.3, the headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) was down from 58.8 in October and signalled the slowest expansion of business activity for seven months. 

All three broad areas of construction activity experienced a slowdown in output growth during November. Residential building activity increased at the weakest pace since June 2013, while civil engineering activity rose at the slowest rate for six months and was the worst performing sub-category. Commercial construction activity topped the growth table, but the latest expansion was less marked than October’s eight-month high.

Construction companies mainly commented on supportive economic conditions and rising workloads at their units. However, there were some reports from survey respondents that cited a lack of new work to replace completed projects in November, which in turn acted as a drag on business activity growth. Reflecting this, latest data indicated a weaker rise in overall new business volumes. In some cases, construction firms suggested that more cautious spending patterns among clients had weighed on new order inflows.

Slower growth patterns across the construction sector contributed to a moderation in job creation from the 11-month high recorded during October. Although still strong in a historical context, the latest rise in staffing levels was the weakest September 2013. Sub-contractor usage continued to rise at a solid pace in November, but their average charges increased at the least marked pace for almost two years.

In line with the trends for output and new work, latest data highlighted a slowdown in input buying growth across the construction sector. Supplier performance continued to deteriorate in November, which survey respondents linked to stock shortages and pressure on capacity. That said, the latest lengthening of delivery times was modest in comparison to those seen on average so far this year. At the same time, input price inflation moderated in November and was well below the long-run survey average. Construction firms noted that lower prices for some raw materials (particularly metals) had partially offset rising labour costs.

Meanwhile, survey respondents remain highly upbeat about the business outlook, with over half (55%) forecasting a rise in output over the year ahead and only 5% expecting a fall. The degree of positive sentiment was down only slightly since October and still well above the post-crisis average.

Commenting on the report, David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said:

“Suppliers continued to struggle this month, citing shortages in key materials, supply chain capacity and skilled capability as the causes. But there is a question mark over the coming months as the housing sector, normally the star performer, may drag back on recovery along with the lack of availability of skilled staff. Many firms were forced to use more expensive contractors and, further combined with the hoped-for continued job growth failing to materialise, this may leave commentators wondering what’s next. 

“Though there will inevitably be some disappointment that last month’s strong activity has largely petered out, the sector still operates in a positive environment of low interest rates, low inflation and lower commodity prices which has been reflected by respondents’ continued optimism for a good future.”