The impact of supply chain within the UK Construction Market

The cost of building materials in the UK has risen sharply over the past few months, and we have been keeping a watchful eye.  There has been much discussion in the trade and national press about this (and noted by our PRS team as we undertake a little DIY ourselves!) so we thought it be useful to share with you what has been going on.

The impact of the pandemic is a widespread shortage of a multitude of construction materials and imbalanced supply and demand has been challenging; as a result, prices have increased both in purchasing prices and rates charged by subcontractors - and in some areas exponentially. Here are some headlines:

• The Department for Business, Energy and Industrial Strategy (BEIS(*)) reported that the overall cost of materials for new housing was 6.7% higher in January 2021 than in the same month a year earlier.

• Continuing into the second quarter of the year, the The IHS Markit/Cips UK survey(**) published in June, showed May was another strong month for the construction sector. In fact, input-cost inflation had increased to its highest rate in 24 years. Housebuilding was listed as the best-performing category of construction activity in May.

• Specific materials have seen large rises. Timber has been an issue worldwide, The Guardian(*) cited “Timber has increased by more than 80% in the past six months, according to Noble Francis, economics director at the Construction Products Association.” Likewise paints & varnishes are cited as up by a third and issues sourcing roofing materials are bringing unprecedented surge in prices.

Overall project costs would not increase by the same magnitude as the figures cited above due to the high proportion of goods made in the UK and because home improvement work is more labour intensive than other construction sectors. Therefore, it’s the labour cost that dominates, rather than the materials cost. However, there is also a labour shortage given increased demand and the issues raised by Brexit, so this still exacerbates costs.

Considering these spiralling costs it remains vitally important to ensure indexation levels are maintained and tracked on an ongoing basis. Whilst Chubb must strip out some of the “Covid effect” we must ensure adequate consideration is given to market indices and future projections.  Extended Replacement Cost is exactly the protection your client needs, so their home will be fully reinstated irrespective of fluctuating market conditions.  We will continue to monitor this and advise of buildings indexation changes if required to protect your clients for today and in the future.