06 February 2024 , 12:50
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Construction firms are facing a hike in building costs for the first time since last autumn, due to Red Sea disruption that's pushing up shipping prices, a report reveals.
The latest S&P Global/CIPS construction purchasing managers' index (PMI) showed that overall input costs rose last month for the first time since September and at the fastest pace since May last year. Some companies have reported higher costs for imported building materials because of the Red Sea attacks on ships, according to S&P Global.
This is mostly affecting imports from Asia, it said. Clothing and home retailers and supermarkets have warned about delays to imported stock and higher costs as ships are being forced to reroute away from the Red Sea.
The attacks on ships by the Iran-backed Houthi rebels in Yemen has forced some firms to divert vessels around Africa, rather than using the all-important Suez Canal to travel between Europe and Asia, adding transport costs and time delays. US and UK forces have responded with strikes against the rebels.
There are fears that the disruption could pose a risk to inflation and therefore hopes that interest rates will be cut this year. The Organisation for Economic Co-operation and Development warned in its latest economic outlook on Monday over the potential for the shipping woes to push up inflation if it affects the cost of goods and energy prices.
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Despite financial pressures, construction firms are the most hopeful they've been in two years following a recent PMI report. This is due to optimism that interest rates have peaked and we're now seeing the other side of the downturn.
The PMI report showed an encouraging score of 48.8 in January, rising from 46.8 in December - marking the highest reading since August last year. Economists had initially predicted a lower January PMI score of 47.2. However, this figure is still below the key 50 threshold for the fifth month in a row, meaning the sector continues to shrink but at a slower rate.
According to Tim Moore, economics director at S&P Global Market Intelligence: "UK construction companies seem increasingly optimistic that the worst could be behind them soon as recession risks fade and interest rate cuts appear close on the horizon." Moore pointed out that the prospect of relaxed financial conditions and improving economic conditions meant business activity expectations were the strongest for two years in January.
He added: "House-building remained by far the weakest-performing category, despite the rate of decline easing to its slowest since March 2023." At the same time, Moore stated: "Meanwhile, higher prices paid for imported items contributed to a rise in overall cost burdens for the first time since last September."
Finally, the report showed a continued decrease in house-building last month, but it was at the slowest pace since March last year."Survey respondents noted subdued demand conditions and a lack of work to replace completed projects," the survey stated.
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