Press release

6 Sep 2021 London, GB

Construction activity feels impact of supply pressures, but outlook still upbeat – EY ITEM Club comments

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Related topics Growth COVID-19
  • August’s construction PMI of 55.2, down from 58.7 in July, was the lowest in six months. But the PMI pointed to a sector still growing at a decent pace. As with other sectors, slower momentum appears to be an outcome of supply-side shortages, not weaker demand.        
  • Spending on home improvements, a strong housing market and a ramping up of government infrastructure spending mean construction sector demand should remain strong. In the face of supply constraints, inflationary pressures will take time to ease. But August’s survey suggests pressure on costs may have passed the peak.  

Martin Beck, senior economic advisor to the EY ITEM Club, says: 

“August’s construction PMI fell for the third successive month to 55.2, the lowest since February. The fall accompanied declines seen in August’s services and manufacturing indices. But as with those other sectors, the loss of momentum in construction looks to be more an issue of supply-side constraints than weaker demand. 

“On the demand side, the outlook for the construction sector remains very healthy. Structural factors – such as higher demand for larger, out-of-town, properties and retail-to-residential conversions in cities – will support new home building, while maintenance and repair activity will gain from the strength of households’ appetite for home improvements and the need to retrofit buildings to meet the Government’s net zero ambitions. And the higher levels of public sector investment planned for the next few years, including spending on infrastructure projects like HS2, will further boost activity. 

“The construction sector faces significant supply-side issues in meeting this demand. EU workers returning home during the pandemic has decreased the availability of workers. And a synchronised global recovery in construction has pushed up the price, and reduced the availability, of key materials such as cement, copper and steel. 

“On the other hand, lower COVID-19 infection numbers and less stringent self-isolation rules since mid-August should reduce the scale of virus-related disruption. Meanwhile, construction firms now have a strong incentive to boost efficiency and productivity, areas which have been a weakness of the sector for many years. Nonetheless, inflationary pressures are likely to remain high. But while August delivered the second-fastest rise in input costs in the construction survey’s history, growth was down from the record rise in the previous two months, evidence, perhaps, that inflationary pressures may have peaked.”