Construction materials price index

Over the five-year period through 2024-25, the UK CMPI is forecast to increase at a compound annual rate of 6.2% - the equivalent of a +39.6-point absolute change - to reach 151.9 points. While being a marked increase in absolute terms, this is partly due to the CMPI starting from a relatively low base in 2017-18 (94.5 points); nevertheless, a subsequent sustained rise in the value of underlying construction activity consistently pushed up supply chain prices, while recent pandemic-induced supply chain disruption and resultant exponential price inflation has more recently exaggerated growth in the CMPI.

In 2015-16, a 2.4% decline - -2.2 points in absolute terms - was in consequence of tumbling global commodity prices between 2014-2016, in particular crude oil, iron and steel, which naturally sent ripples through industrial sector supply chains. However, construction materials prices subsequently rallied, driven by a combination of a high level of UK construction activity and post-referendum exchange rate-driven input price inflation. Subsequent to, and consequent of, the EU referendum result, political and market uncertainties ensued and, in turn, currency and commodity market traders lost confidence in the UK economy; the trade-weighted value of the pound sterling depreciated sharply as a result, and since remained depressed against historical standards. In this respect, the price of imported construction material in particular rose, typified by year-on-year growth in the CMPI since 2016-17 inclusive. Meanwhile, and regardless of low sentiment among investors and project stakeholders limiting the volume of new orders in construction coming to fruition, a backlog of work in civil engineering markets and a supportive policy backdrop for the householding ensured UK construction activity remained at a satisfactory level through the post-referendum, pre-pandemic years. Consequently, lead times in construction market supply chains remained lengthy, keeping upwards pressure on input material prices.

In 2020-21, the CMPI inflated by 2.2%, or +2.1 points in absolute terms, year-on-year, driven by pandemic-induced disruption to supply chains and compounded by further supply chain disruption at the hands of the UK's post-transition period withdrawal from the EU bloc; the EU-UK Trade and Cooperation Agreement was ratified on 1 January 2021. While construction activity effectively froze during the Spring 2020 lockdown, with the government mandating all non-essential on-site works pause while firms implement necessary operating procedures (e.g., social distancing measures), and while many projects were delayed, postponed or otherwise cancelled, as stakeholders assessed the feasibility to continue from a financial and operational perspective during COVID-19 (coronavirus), the fact critical construction works were permitted to continue, in addition to the release of pent-up demand in construction beyond Q2 (April-June) 2020, meant underlying construction activity remained relatively high over the course of the fiscal year. Consequently, demand-side factors continued to push up materials prices. From a supply-side perspective, lead times for construction materials were extended somewhat significantly, as reduced capacity in industrial production markets limited the availability of markets, while travel bans and more stringent border check procedures having limited access to regular supply links. Accordingly, the CMPI inflated.

Over the course of 2021-22, pandemic-induced supply chain disruption ensured and construction costs continued to soar. As domestic and global supply chains remained in a state of disarray, inventories remained low and merchants' efforts to secure new supply were, in many cases, proved unsuccessful. Accordingly, a "perfect storm" of supply shortages and heightened demand as the economy has reopened have resulted in exponential supply chain price inflation. Overall, the CMPI accelerated by 18.6% - +19 points in absolute terms – in 2021-22 alone, reaching 121.1 points. Despite an EU-UK Trade and Cooperation Agreement being struck, supply chain disruption was effectively compounded by the imposition of tariff and non-tariff barriers to trade, and the need for domestic purchasers who adjusted to the UK's new-found independence to modify their supply chains in consequence. Accordingly, extended lead times and limited supply inventory and supply availability likely contributed to further supply-side inflation in the CMPI.

On the morning of 24 February 2022, President Vladimir Putin announced that Russia was initiating a "special military operation" in the Donbas region, and proceeded to launch a full-scale invasion into Ukraine. This then led to various economic and diplomatic sanctions from Western countries, including the UK, towards Russia. These sanctions have been met with threats from Russia and orders my President Putin to place Russian nuclear deterrent forces on high alert. While the long-term global and domestic economic outcome of the Russian-Ukrainian war is uncertain at this stage, it is evident that this has been an influential factor towards construction materials price index. This is because of the response to Russia's actions, whereby energy giants such as Shell, BP and Exxon have pulled out of Russian energy deals, while the many Western countries have announced a ban on importing Russian oil and other petroleum products, which has significantly disrupted the supply chain. In addition to this, higher prices oil prices as a direct result of Russia's invasion of Ukraine have been compounded by strong consumer demand across the globe as the world has attempted to recover from the pandemic and weak supply as the leading oil-producing nations throttle output. As a result, the globe has endured significant supply chain disruptions and surging energy prices (inclusive of oil). All of which is projected to compound and lead to rising CMPI. Overall, the CMPI is forecast to accelerate by 17.1% - +20.8 points in absolute terms – in 2022-23 alone, reaching an estimated 141.9 points.