Construction output tumbles as builders hit by surging costs and red tape
The UK’s construction sector suffered a sharp fall in activity last month, as the Iran war batters confidence and drives up prices.
S&P Global’s monthly construction index for the UK dropped to 39.7 in April, down from 45.6 in March.
Builders are beginning to suffer from rising material costs caused by the blockage to the Strait of Hormuz, as housebuilding slows landbuying and demand for homes weakens.
Labour has been warned major infrastructure projects could be put on hold, as cost rises might be exacerbated by a slowdown in spending around the local elections.
Civil engineering activity suffered the biggest drop in April, down to 35.5, followed by housebuilding, which fell to 38.2.
Construction firms widely reported falling demand and a lack of new work to replace the projects that were completed in April, according to S&P.
Employees are bearing the brunt of empty order books, as the pace of job losses sped to its fastest rate in four months.
Some firms told S&P they were unable to replace workers who left voluntarily because of the lack of new projects and strong upward pressure on wages.
Cost inflation jumped at its fastest rate since June 2022, as building firms said they have suffered from shipping delays and difficulties with importing materials from the Middle East.
More than two thirds (69 per cent) of firms reported a rise in their input costs, up from 48 per cent in March, and only two per cent said their costs had eased.
Construction sector struggles for momentum
Businesses said fuel surcharges were contributing to this rapid increase in costs.
Some construction companies said they are attempting to purchase raw supplies in advance of their use, because they fear that material and shipping costs could rise further.
Tim Moore, economics director at S&P Global, said: “Survey respondents cited a growing list of factors weighing on construction sector optimism, including fragile investment sentiment and elevated borrowing costs.”
These worries were accompanied by “continued uncertainty about the impact of the Middle East conflict on prices, supply chains and broader economic prospects,” he said.
Huda As’ad, capital projects and infrastructure lead at Capital Projects, said: “The steep decline in output this month is a sharp reminder that the sector is still struggling to build sustained momentum.
“Persistent cost pressures, supply chain disruption and project delays are continuing to stall progress and dent confidence.”
Kelly Boorman, head of construction at audit firm RSM UK, said: “Local elections this week could cause further uncertainty among contractors around where future infrastructure spending will be focused.
“There is a significant risk that some planned projects will become unviable in the current economic climate, particularly for long-term fixed price projects, so we may see some large infrastructure projects put on hold.”
Building a house costs £76k more
Builders have warned rising inflation caused by the Iran war comes on top of growing tax and policy costs.
Around £76,000 has been added to the average cost of building a home since 2020, the Home Builders Federation (HBF) has warned.
These extra costs include more than £7,000 in taxes and levies, over £23,000 in regulatory costs and £37,000 in increased material and labour costs.
The government has pledged to build 1.5m homes by the next general election, but housebuilders have warned this target is under pressure.
Neil Jefferson, chief executive of the HBF, said: “The government’s ambition for new homes relies heavily on private home builders to deliver, yet it is not providing the conditions for these businesses to operate.
“While the industry supports the ambition behind some of these policies, there has been little consideration of their combined impact. The fact that house completions have remained slow clearly shows that planning reform alone is not enough and that other pressures are at play.”