Skills riddle takes shine off buoyant construction sector

03 September 2014 -

Industry often seen as indicator of UK’s broader economic health records high employment growth – but strains emerge from supplier lead times, subcontractor availability and skills shortages

Jermaine Haughton

UK construction looks to be in rude health once more, as new data shows the industry achieved substantial growth during August. According to the latest research from the Chartered Institute of Purchasing and Supply (CIPS), sharp rises in housing work that month, together with activity in commercial and civil engineering, has boosted the overall sector, traditionally viewed by experts as a key indicator to the state of the wider economy.

At 64.0 in August, up from 62.4 in July, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) remained well above the neutral 50.0 threshold and signalled the fastest overall increase in output levels since January.

Residential construction posted the fastest rise in activity due to high demand. Civil engineering activity increased at the strongest pace since March, while growth of commercial construction was at its fastest since the summer of 2007. The industry’s revival has also been reflected in the August employment numbers. Markit senior economist Tim Moore – author of the study – said: “UK construction firms saw one of the sharpest rises in output for seven years in August, with increasing workloads driven by an array of factors including surging homebuilding activity , greater infrastructure spending and renewed confidence within the commercial development sector.”

He added: “A broad-based upturn in construction demand has created a boom in job creation this summer, as construction companies look to replace capacity lost in the aftermath of the recession. However, acute skill shortages meant that subcontractor charges rose at the fastest pace since the survey began in 1997.”

Construction firms reported their optimism regarding the future of the industry over the coming year, against a background of an improving economy and clients showing a greater willingness to commit to new projects. More than half (59%) of the building firms surveyed expected a rise in business activity, while only 7% forecast a decline.

However, with the increased business for construction firms come problems with supplier capacity. The data showed that a combination of low stocks and capacity pressures led to delivery times from vendors being delayed to the greatest degree since the survey began more than 17 years ago. Additionally, costs rose sharply in the sector. Most notably, the rate of input-price inflation increased at its fastest level since July 2011 – with some firms noting that strong demand for inputs had allowed suppliers to re-establish margins in recent months.

Although many builders and tradesmen may have had a very profitable summer, CIPS group chief executive David Noble warned that there could be problems ahead. “The resurgence in construction has entrenched itself after a summer of blistering growth,” he said, “but builders should prepare for growing pains this autumn as the sector labours to recover lost capacity. Buoyed particularly by investment into civil works, construction output grew at the fastest pace for seven months in August, while activity continued to expand in housing and commercial construction. Confidence for the next 12 months also remained high as businesses continue to invest for the future.

“Nevertheless,” he added, “an encouraging 15 months of sustained employment growth, the longest since 2006 to 2008, is revealing a major skills shortage in the sector. August saw the quality of subcontracted work deteriorate at the fastest rate since the survey began in 1997, combined with a record reduction in the availability of subcontractors and a record rise in the rates charged. The sector is struggling to find enough skilled tradesmen to keep pace with new work, and the labour market will continue to put pressure on costs until the next wave of apprentices begin to enter the jobs market.”

Noble concluded: “Indeed, across the supply chain, delivery times have seen the sharpest rise since the survey began, with input prices growing at the fastest rate since July 2011. With the UK’s appetite for building materials growing throughout the summer, suppliers are struggling to ramp up production to pre-crisis levels.”

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