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Growth in the UK construction industry slowed in December as the impact of Omicron offset construction companies’ profits from the dwindling disruption in the supply chain.
Figures from IHS Markit and the Chartered Institute of Procurement and Supply (Cips) showed that construction companies closing in 2021 are on a weaker footing, with coronavirus infections and new pandemic restrictions affecting demand.
According to the latest snapshot, construction companies reported delays in customer decision-making due to the Omicron variant, which contributed to the slowest growth in the industry in three months.
However, the survey of 150 construction companies monitored by the government and the Bank of England for early warning signals from the economy signaled a reduction in pressure on construction companies from supply chain problems.
To give the sector some respite after a severe disruption earlier this year, the number of construction companies reporting delivery delays fell from 47% in November to 34% in December. Less shortages of vital raw materials and improved delivery times contributed to the lowest inflation rate for building materials in nine months.
The development comes amid growing concerns about the impact of inflationary pressures on the UK economy due to severe supply chain disruptions and high energy prices, which together are holding back growth and affecting household finances.
Official figures show that rising energy and gasoline costs pushed inflation to 5.1% in November, the highest level in a decade. The Bank of England has announced that interest rates could peak near 6% this spring. Experts warn that a 50% increase in energy bills will put heavy pressure on households.
New figures showed that euro area inflation rose to 5% in December, up from 4.9% in November, the highest level since the single currency was launched two decades ago. Energy prices drove up the cost of living, up 26% last year, while wholesale oil and gas prices soared.
Economists said the latest numbers from the UK construction sector are an encouraging early sign that supply bottlenecks are easing, but warned that the emergence of Omicron threatens to undo recent strides in addressing bottlenecks.
Jan Crosby, Head of Infrastructure, Construction and Construction at accounting firm KPMG, said: “Coupled with the disruptive weather we are experiencing at this time of year, any tightening of restrictions or the need for workers to self-isolate is likely to result in project delays or even temporary closures some locations.
“The sector has shown great resilience through the events of the past two years and has remained resilient despite seemingly endless obstacles and pressures. And this will have to stay that way at the beginning of 2022, as the effects of the current Omicron variant, supply chain problems and a shortage of skilled workers will continue to cause uncertainty in the coming months. “
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According to the latest figures from IHS Markit and Cips, residential construction saw the strongest growth and was the only subsector to gain momentum in December. Commercial construction and civil engineering were weaker, although customer demand across the construction industry reportedly remained resilient.
The IHS Markit / Cips UK Construction Purchasing Managers Index (PMI) fell from 55.5 in November to a three-month low of 54.3 in December. A reading above 50 signals growth.
Tim Moore, a director at IHS Markit, said the worst period of supplier delivery delays that plagued the sector last year was “over,” with improvements in the availability of construction products and materials in December.
“[However,] While construction suppliers caught up on their backlog and increased capacity, there were still widespread reports of unresolved transportation problems and driver shortages, â€he said.
