A statement from the Construction Leadership Council’s (CLC) co-chairs warns of supply challenges and asks that suppliers give clear guidance when they have to raise their prices
The construction supply chain has been expected to take a beating for some time now, especially with the continued and escalated conflict in Iran and around the Strait of Hormuz.
John Newcomb and Peter Caplehorn, the co-chairs of the CLC, have written a statement indicating that while it has not impacted the UK much as of yet, it can easily get worse, and suppliers and firms must be prepared.
The statement can be read in full below:
“The challenges facing the UK construction industry persist. Early signs of improvement in construction output in February were quickly reversed following the start of the Middle East conflict in March. The expectation now is that the conflict will further intensify pressures, especially through rising prices and renewed inflation.
“With little or no growth in demand, product availability is generally good. The exceptions are concrete plain roof tiles (mentioned in this Group’s report of 30 March), which are expected to remain in short supply until the end of the year, and PIR Insulation, which is currently on allocation with lead times of around three weeks. This is likely driven more by precautionary buying than by underlying demand.
“Inflation in the UK, which had been easing to 3.0% CPI in February, is now expected to rise by around 1.0% due to higher energy and input costs, undermining earlier expectations of interest rate cuts. The overall impact of the conflict is projected to reduce UK growth by approximately 0.5% to 1.0%.
“The impact of cost inflation on building materials has already been substantial. Builders’ merchants reported that standard January price increases have added 2.2% to the cost of goods, and the annualised impact of Middle East- related increases to date has added a further 2.9%, taking the total increase to around 5.1%.
“The most immediate and pronounced impact continues to be fuel and energy costs, which affect all suppliers through both direct transport and wider operational expenses. While many businesses are currently absorbing these costs, this is not sustainable indefinitely, and there are already reports of domestic haulage fuel surcharges of 5% to 10%.
“One of the key challenges across the supply chain remains the lack of detailed explanation accompanying price increases, making it difficult to justify and communicate these costs to clients. Clearer evidence and transparency would be welcomed, even if the increases themselves are not.
“While there is acceptance that price pressure is justified in some areas, particularly for energy-intensive products (e.g. steel, bricks, concrete, glass, insulation) and petrochemicals (e.g. adhesives, bitumen, PIR, and PVC pipe), increases in other product categories are considered difficult to attribute solely to underlying costs.
“There is no product category that has not shown signs of either current or forthcoming price increases, with pressure recently extending into bathrooms and kitchens, driven respectively by MDF costs for cabinetry and rising overseas logistics and global input costs.
“Increases in raw material costs for metals, including steel, brass, tungsten and copper, were already evident before the Middle East Conflict. Worryingly, further increases are expected, as some imported steel products are facing severe UK tariffs and quotas from 1 July.
“The Group is pleased to note that the Government has recognised these concerns and committed to working with the construction industry over the coming weeks, to identify potential solutions. This will be completed prior to the introduction of the new tariff and quota system on 1 July.
“Attacks on Gulf smelters, which supply around 20% of Europe’s aluminium, are also expected to have a significant impact on both availability and cost.
“A fundamental issue, particularly for SMEs and housebuilders, remains the consumer’s capacity to absorb price increases, particularly with the withdrawal of a large number of mortgage products. The lack of consumer confidence is a key constraint. Higher costs are leading to greater caution and growing uncertainty over whether RMI projects and house purchases will be delayed or cancelled.
“As costs are passed along the supply chain, profit margins are being squeezed at every level. We know, for example, that cost pressures are severely affecting roofing and other specialist subcontractors, who are trying to balance escalating material costs within existing 6-12 month fixed-price agreements, highlighting a significant pressure point within the supply chain.
“The Group expressed a desire for:
- Notifications of price increases to be accompanied by a clear, detailed explanation, to pass through the market
- Recognition that the higher costs and inflationary pressures caused by the Middle East conflict will likely persist for some months after hostilities cease; nonetheless, these increases should be treated as genuinely exceptional, handled differently from normal pricing, and preferably reversed as soon as circumstances allow.
“In the face of such challenges and uncertainty, members of the Group strongly advocate that, now more than ever, the industry should use this time to plan, work collaboratively, and share forecasts and requirements early with everyone involved. Clear communication across the industry during these times is not only mutually beneficial but also vital for successful projects and a healthy, productive UK construction sector.”
Many feel that the industry will suffer
Research conducted by Pick Everard found that 70% of survey respondents fear that their output capacity will be affected by construction price rises and oil restrictions over the next six months.
The key price rise comes in fuel prices, which have climbed so high as to bring inflation up to 3.3%. This can further damage an already sensitive confidence.
Gavin Mason, Operations Director at Pick Everard, said that sitting tight is not an option and urged construction companies to adopt a proactive risk-management approach.
“It’s not a lack of intent that is the issue now,” he said, “but a ‘watch and wait’ mentality that is threatening growth.
“The problem is that the shockwaves from the Iran war are likely to be felt by construction for some time – regardless of how peace talks play out. In these volatile times, we need to collaborate and foster agility through strategies like advanced procurement and data sharing.”
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