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Cost inflation at second-highest level since 2008

Cost inflation remained at summer 2008 levels in February according to the latest Markit/CIPS Construction PMI.

Respondents to the latest construction Purchasing Managers’ Index survey reported that the rate of input cost inflation hit its second-highest level since August 2008, after the speed of cost hikes hit an eight-and-a-half-year high in the previous month’s PMI.

The data suggested cost inflation was “overwhelmingly linked” to higher prices for imported materials, according to the report by Chartered Institute of Procurement & Supply and research firm Markit.

Feburary’s construction output index level was up slightly to 52.5, ahead of last month’s 52.2 and above the 50.0 ‘no change’ level, indicating the industry grew – albeit at a relatively slow pace.

Civil engineering replaced housebuilding as the fastest-growing sector for the month, after residential activity increased at its slowest pace for six months.

Commercial activity posted its first month-on-month decline since October, while order books grew at their slowest rate since October.

However, construction firms remained largely upbeat about the industry’s prospects, with 48 per cent of respondents expecting an increase in business activity over the next 12 months, and only 13 per cent forecasting a decline.

This has led to robust levels of recruitment across construction, while subcontractor availability saw its sharpest fall since January 2016.

Paul Trigg, construction specialist at insurance firm Euler Hermes, said the cost inflation data showed that the outlook for small subcontractors was now “a serious concern”.

“These companies, often last on site, are seeing profits squeezed by projects running over budget and lead contractors lengthening payment terms,” he said.

However, Robert Grigg, managing director of property finance at Hampshire Trust Bank, said the outlook data reflected a more encouraging trend for SMEs.

“Today’s figures are positive news for the construction industry and echo the sentiment of our recent SME Growth Watch Report, which found that half of SMEs in the construction sector are optimistic about their long-term growth prospects,” he said.

“While this is encouraging, greater measures need to be taken to support our construction industry, in particular SME housebuilders, as we believe these firms hold the key to boosting the level of housing stock in the UK.”

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