Construction cost inflation at 24-year high as housebuilding leads strong growth in output

There is, again, a lot of good news in this month’s Construction PMI Data, with new order volumes increasing at the fastest rate since 1998, growth in both activity and jobs at their strongest in eight years and confidence all continuing to be strong.

The rampant cost inflation continues to be a concern, with no short to mid-term signs of a decline. The damaging cycle of high demand, shortage in supply and stockpiling is going to start biting deeply into productivity. It is already presenting massively challenging project economics to contractors already suffering from the grinding long term effects of the 2010 recession compounded by Brexit and lockdown.

Do clients start being more open to sharing the downside of this trend in increasing cost? Do manufacturers and suppliers pass less of the increase on into the industry and take more of the hit? Do contractors just have to buckle down under fixed price contracts and continue to grin and bear it (where they can)?

Look out for what might seem like counterintuitive corporate failures across what is clearly a buoyant sector.  Businesses will get trapped in a cash vacuum between full order books and escalating prices coupled with supply lead times disappearing into the distance.

For more information and for any questions regarding new construction data, please contact me directly on david.vayro@primaslaw.co.uk.