06 APR 2022


March saw the fastest rise in construction orders since August 2021, according to the latest monthly PMI figures. But escalating inflationary pressures and concerns about the economic impact of the war in Ukraine contributed to business optimism dropping to a 17-month low, with the degree of confidence about future growth at its weakest since October 2020.

The headline S&P Global / CIPS UK Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry activity – registered 59.1 in March, unchanged from February and well above the 50.0 mark that separates expansion from contraction. The latest reading signalled the joint-fastest rate of output growth since June 2021.

Commercial work was the best-performing segment in March (index at 60.8), with projects restarting amid the roll back of pandemic restrictions. This part of the construction sector has seen output growth accelerate for three months in a row and the latest upturn was the strongest since June 2021. 

In contrast, the recoveries in civil engineering (index at 56.3) and residential work (54.9) lost momentum in March. The latter saw the slowest expansion of the three broad categories monitored by the survey.

Total new orders expanded at a robust and accelerated pace in March, with the latest rise the strongest since August 2021. Construction companies typically cited improving tender opportunities and resilient customer demand, despite some reports that economic uncertainty and rising costs had limited new business growth.

Rising workloads contributed to a considerable rise in staffing numbers during March. That said, the pace of job creation eased to its weakest so far this year amid ongoing difficulties filling vacancies.

Capacity constraints, a lack of haulage availability and ongoing logistics difficulties led to another sharp downturn in supplier performance. Around 33% of the survey panel reported longer lead times for construction products and materials, while only 1% saw an improvement. However, delays remained less widespread than the peak seen last summer.

Imbalanced supply and demand, alongside escalating energy, fuel and commodity prices, resulted in a rapid rise in average cost burdens in March. The overall rate of input price inflation accelerated sharply since February and was the highest for six months.

Concerns about the war in Ukraine, forecasts of severe cost inflation and a less favourable global economic outlook all weighed on constructors' confidence in March. Around 48% of the survey panel expect a rise in business activity during the year ahead, while only 15% predict a decline. However, the balance of positive sentiment was the weakest seen since October 2020.

Tim Moore, economics director at S&P Global, which compiles the survey, said: "The construction recovery looks set to continue in the near-term as order books improved at the fastest pace for seven months in March. Input buying and job creation in the sector also remained indicative of strong underlying momentum.”

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “Construction companies are braced for more disruption on the horizon as a result of the Ukraine conflict. The rise in purchasing demand fed into higher costs for materials already in short supply as energy hikes also impacted on business costs. With these severe challenges, it is no surprise that business optimism for the months ahead has been affected.”

Stephen Marcos Jones, CEO of the Association for Consultancy and Engineering (ACE), remained cautiously upbeat. He said: “Despite the significant challenges resulting from the crisis in Ukraine and the high inflationary pressure we’re currently experiencing, it is encouraging to see that construction output remains positive. In our recent roundtable with ACE member representatives and officials from BEIS on the impact of Ukraine, we agreed that collaboration, open dialogue and transparency – both across the supply chain and between our sector and government – will ensure we are in the strongest position possible to manage this uncertainty.

“While our sector is currently less severely affected than other areas of construction, inflation impacts all businesses. In this regard, the chancellor’s spring statement was a missed opportunity for more targeted business support to not only help business to manage the weeks and months ahead, but also to boost optimism which is understandably subdued at the moment.”

Mark Robinson, group chief executive at SCAPE, said: “March topped off a strong first quarter for the construction industry as it maintained momentum from 2021 and kept pace with the effects of sustained inflation. Contractors are well aware of the growing pressures they face though. The conflict in Ukraine has further strained existing supply issues, while the rising cost in energy is clearly unsustainable for those managing tight margins. As such, the timing of government’s energy security strategy, due tomorrow, will be much welcomed. While contractors will no doubt have one eye on the significant infrastructure investment it promises, the majority will be hoping to see more immediate policy intervention that helps them to stabilise delivery costs and provide greater certainty when tendering for work.”

Max Jones, director in Lloyds Bank’s infrastructure and construction team, said: “While the UK’s construction industry doesn’t have much direct exposure to the war in Ukraine, many contractors are feeling the secondary impacts in supply chains and costs, and some will be concerned by the threat of cyber-attacks. Bolstering online defences will help protect their operations both now and in the future. Overall, the sector is navigating inflationary challenges relatively well. Contractors know the coming months will bring challenges but, having shown their underlying strength over the last two years, see cause for confidence in continued demand growth.” 

PMI data was collected between 11-30 March 2022.


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