Construction PMI: Activity and sentiment pick up as supply chain pressures fade, but labour shortages and project delays will persist says RSM

Business activity in the UK construction sector saw an uptick for the twelfth consecutive month in January. The rate of growth also picked up on the previous month reaching a 6-month high, according to the latest PMI data by IHS Markit and CIPS.

Optimism was the strongest since May 2021 and largely reflected increasing tender opportunities and expectations of a swift recovery for the UK economy in 2022. But concerns remain according to RSM UK.

Commenting on the findings, Kelly Boorman, partner and national head of Construction at RSM UK, said: ‘The construction pipeline remains strong, but businesses will continue to be selective about the projects they bid for to preserve margin. This coupled with the pressures presented by labour shortage will contribute to stalling projects and delayed starts in 2022. Over-trading by the smaller business will also remain a concern as they look to fill their pipelines and expand project sizes without the staff structure underneath. However, as supply cost price increases start to slow, so too will the pressures on contractors to reprice their bids month-on-month.’

Thomas Pugh, economist at RSM UK, added: ‘The construction sector was already 1.3% larger than its pre-pandemic level in November and had outperformed the economy as a whole. The latest PMI data suggest the sector continued to outperform in December and January. It is positive to see the suppliers delivery times index rise and the input prices index fall, suggesting that supply shortages are easing. This is reflective of similar trends in the manufacturing industry and across the wider economy. However, the jump in the employment index suggests firms are still keen to hire more labour in an already tight market. Indeed, we think that labour shortages will be a persistent problem holding back output for most of this year, meaning that middle market firms will need to focus on improving productivity to boost output.’