Cost consultants Arcadis is warning the spectre of stagflation could hit construction as soaring materials inflation and risk allowances in tenders delay project pipelines.
It estimates that disruption caused by the Ukraine War has magnified existing supply chain problems adding 3 to 5% to the cost of typical projects.
This is even though materials sourced from Ukraine barely account for 1.2% of the value of construction imports.
Construction output slipped by 0.4% in April, marking the first decline since October, as fears about the wider economy cooled business confidence.
The decrease came from a fall in repair and maintenance of 2.4%, which was slightly offset by a 0.9% rise in new work.
The main sectors dragging down overall growth were private housing repair and maintenance, and private commercial new work which dropped by 6.5% and 3.8%, respectively.
Construction buyers reported a slowdown in growth last month as residential work acted as a brake on industry activity.
The headline S&P Global/CIPS UK Construction Purchasing Managers’ index registered 56.4 in May – down from 58.2 in April and the lowest reading for four months.
It was still in growth territory above the crucial 50 no-change mark but business activity expectations at construction companies were the least upbeat since August 2020.
England’s largest councils have warned they will be forced to delay repairs to local roads and infrastructure as spiralling inflation adds over £1.5bn to their costs.
To balance budgets – as they are legally required to – and control costs, councils are warning of a winter of ‘difficult decisions’ ahead.
These could include further unplanned reductions to services and the cancellation or delays to major construction projects such as new roads, amenities and infrastructure upgrades to schools, as well as pothole filling.