A surge in optimism is wonderful to see, but material price inflation could put a brake on construction’s rebound
There is a buzz in the air this week as easing covid restrictions allowed people to shop for non-essential items, meet up for outdoor drinking and, perhaps most pressing of all, finally get a haircut. And the upbeat mood has been matched in the world of construction: our own survey shows industry optimism about future work prospects has jumped by 90% compared with the dark days at the end of last year. Official figures suggest there are good reasons to be cheerful, growth in new commercial work has helped construction output reach its highest level in six months. February’s GDP figures show output across the whole industry grew 1.6%, one of the strongest parts of the economy, which recorded a more modest 0.4% increase.
Clearly, we are not back to where we were before the pandemic, but the economy is beginning to reopen thanks to a successful UK vaccine rollout, which has met its target of offering all the over 50s a jab by the middle of this month. That is quite an achievement.
It is particularly heartening to see confidence returning to the commercial sector. The latest IHS Markit/CIPS data also revealed the strong rebound many had been predicting – with its highest score from purchasing managers since September 2014 – as work resumes on stalled office jobs and the hospitality and leisure sectors reopen.
The surge in optimism is wonderful to see, but – and this is not intended to put a dampener on things – it may not be all plain sailing from here on.
Purchasing managers blame a combination of Brexit and the pandemic for the sharpest cost increases reported since 2008
First, scientists are not ruling out a third coronavirus wave. While we do live on an island, we are just as vulnerable to vaccine-resistant variants and so the risk of further outbreaks must still weigh on business leaders’ minds. Fortunately, the chances of this third wave being as pernicious as the previous two, are slim.
Secondly, and more specifically for the construction industry, global demand for raw materials and construction products is already creating shortages in the UK and the prediction is for tender prices to increase as a result.
A tender price forecast from T&T pointed to stockpiling, post-Brexit customs checks and a reduced availability of freight containers are all contributing to rising costs. The very real fear is that these price rises will put the brakes on construction’s recovery. The risk is on the Construction Leadership Council’s radar – it issued a warning last week that the shortages are likely to get worse and advised firms to plan for longer delays.
Purchasing managers are already waiting longer for materials and they largely blame a combination of Brexit and the pandemic for the sharpest cost increases reported since 2008.
Simon Rawlison at Arcardis makes some very interesting points about these inflationary trends, and the global pressures at play – Brexit is one for sure, but so is the international rush to invest in building programmes to kick-start recovery. He is right to point out that, for the first time in a long time, product and materials shortages are now a risk factor when pricing projects.
One other thought on this topic: bigger firms have the capacity to manage sophisticated global supply chains, SMEs not so much. This month Building spoke to one firm trying to export its construction product to the EU and discovered the extent of the pain it has felt since Brexit. It is one example, and of course the hope is that Brexit teething problems will ease – the latest figures show exports to the EU are picking up. But the point is that smaller firms can get cut off at the knees when supply chains are disrupted for an extended period by global events. Individual businesses, but also the industry as a whole, need to look beyond the buoyant public mood in the UK and keep a wary eye on what is beyond our shores for the risks as well as the opportunities. Diversifying supply chains is becoming more business critical than ever.
Gender pay gap data is more important than ever
Business decisions taken in haste at the height of the pandemic have had unintended consequences on gender pay gap data now being reported. We know individuals in construction – men and women – will have taken hits to their salaries, whether through pay cuts, furloughing, reduced hours or, for the least fortunate, redundancy. These were tough decisions for employers, and necessary ones no doubt, but there are questions construction, as a male-dominated sector, needs to ask itself. Are women being disproportionately affected by cost-cutting measures? Have hidden pressures, such as the burden of unpaid childcare during multiple lockdowns, limited their opportunities? Commentators fear that is the case, but so far only a dozen or so of the bigger construction employers have submitted their gender pay gap data and the results are very mixed. We need to remember why this data is important. It is all about transparency, which is needed to identify structural problems that lead to a lack of diversity. This is not a women’s issue, it is a construction issue – and it has not gone away.
Chloë McCulloch is the editor of Building