February saw the fastest rise in UK construction output for eight months, but concerns including inflation and the ongoing Russian invasion of Ukraine saw business confidence ease to its softest since January 2021. 

February PMI® data indicated that business activity gained momentum across the UK construction sector. Building companies commented on the strongest rise in output since mid-2021 amid stronger client confidence and work on new projects commencing. Construction companies continued to report widespread supply constraints and rapidly increasing input costs, though the rate of inflation in the latter was the least severe for 11 months. That said, ongoing disruption dampened the year-ahead outlook for activity, with confidence at the lowest since January 2021.

The headline seasonally adjusted IHS Markit/CIPS UK Construction PMI® Total Activity Index registered 59.1 in February, up from 56.3 in January to signal a robust and accelerated rise in output volumes. The headline index has now posted above the neutral 50.0 threshold in each of the last 13 months.

House building (index at 61.5) replaced commercial work (58.4) as the best performing category of construction work in February. The latest increase in residential work was the strongest for eight months. Commercial construction also expanded at a quicker pace than in January, with the rate of growth the sharpest since last July. Meanwhile, civil engineering activity (index at 57.5) increased at an accelerated pace that was the strongest since June 2021.

New order growth accelerated for the fourth month running in the latest survey period to extend the current sequence of expansion to 21 months. Moreover, the rate of growth was the fastest since last August as construction companies commented on stronger client demand in line with the recovery in economic activity and new projects being brought to tender.

Resilient pipelines of new work were highlighted by a steep rise in input buying across the construction sector during February. The latest expansion was the fastest for seven months and commonly reflected pre-purchasing ahead of new project starts. Staffing levels also increased at a sharp pace, extending the sequence of job creation to 13 months.

Around 36% of the survey panel reported longer delivery times among suppliers in February, while only 4% saw an improvement. Delays were overwhelmingly linked to driver and material shortages, as well as international shipping delays. That said, the number of construction firms reporting longer lead times for deliveries was down from a peak of 77% in mid-2021.

Reflective of widespread delivery delays, latest data signalled another rapid rise in input prices, though the rate of inflation eased to an 11-month low. 

Finally, the near-term outlook for construction activity remained positive in February. Just under half of the survey panel (48%) forecast an increase in output during the year ahead, while only 9% predicted a fall. That said, the overall degree of optimism eased to the softest since January 2021 as firms cited concerns about the impact of rising costs and supply shortages.

Usamah Bhatti, economist at IHS Markit, which compiles the survey said: "UK construction companies achieved a faster expansion in output volumes in February as the economy recovered from the recent wave of Covid-19 infections related to the Omicron variant. House building had the strongest showing, as signalled by the fastest rise in residential work for eight months. Despite continued volatility in price and supply conditions, the overall rate of new order growth accelerated from January to reach the fastest since last August as client confidence improved in line with economic activity as Plan B restrictions were fully lifted.”

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "The construction sector maintained its growth momentum whilst battling a number of headwinds such as supply issues and higher input costs to put in its best performance for eight months in February. Also, the highest rise in order books for six months didn’t do enough to improve future optimism as business expectations dropped to January 2021 levels. Curbing inflation will continue to be a big issue for building firms who will be nervous about securing continuing supply and offsetting price rises to improve business margins, especially if costs continue their skyward trajectory."

Stephen Marcos Jones, chief executive of the Association for Consultancy and Engineering (ACE), said: “More good news for construction and the continued easing of pressures on the sector is welcomed. With demand upbeat as we emerge from the latest coronavirus wave, and pressures on supply chains easing, there is plenty to be positive about. Having said that, companies will be keeping an eye on the supply and availability of materials and skills, crucial if we are to be able to meet this uptick in demand. ACE members welcome this positive news and the confidence it creates for the wider construction sector.”

Ian Cooper, director and head of construction sector at DWF, said: "The construction market could be overheating. The continued growth in activity, across all sectors, is putting a significant demand on the available supply chain to deliver. Whilst it is good news to see input cost inflation ease, the industry is very busy with contractor's order books full for at least the year ahead. Consequently it is no surprise that buying has increased as clients look to secure increasingly scare construction delivery resources."

Mark Robinson, group chief executive at SCAPE, said: “Another month of accelerated growth is proof that the industry is back in its pre-pandemic groove, despite inflationary concerns induced by ongoing labour and materials shortages. The conflict in Ukraine and its impact on global energy prices will likely intensify the inflationary pressures, which adds another worry for project delivery at a crucial time – when the construction sector gears up for its busy spring and summer season. It’s important that contractors closely monitor the health of their supply chain and help them navigate effects of increasing costs, particularly through early engagement and constant dialogue.”

Brendan Sharkey, head of construction and real estate at MHA, said: “The UK construction sector has got a good wind in its sails. Inflation is a very grave concern but there are real strengths underpinning demand for new-build housing. In addition we’re starting to see that Brexit, although painful, has already led to businesses in the sector diversifying their supply chains. This stands them in good stead to weather the economic shocks of Russia’s invasion of the Ukraine.”

PMI data was collected between 10-25 February 2022.