Subcontractor pay rates and materials prices in the UK construction sector are showing steep rises, according to the latest PMI™ data from the Markit/CIPS Construction PMI™ published today.

Markit says that construction hiring has hit a new record as the boom rolls on into July, with a record increase in employment. The surging growth of new business has encouraged constructors to take on a record number of extra staff in July, According to Markit, alongside upbeat manufacturing PMI numbers, the data add to signs that the UK is set to enjoy another period of strong economic growth in the third quarter.

However, the survey also fires some warning shots in relation to inflation. Rates charged by subcontractors are rising at a near-record pace and prices paid for construction materials are also increasing sharply.

The survey also says that historically strong growth rates were also seen for commercial activity, as well as civil engineering activity - the average PMI reading for the latter in the year to date was the highest ever recorded by the survey.

New orders in the industry continued to rise in July at a rate rarely exceeded in the survey’s 17-year history, suggesting there is a strong pipeline of work to sustain further robust activity growth in coming months.

Record employment and subcontractor pay growth

A promising outlook and overstretched existing workforces prompted construction companies to take on staff at a pace never before seen in the survey’s history, beating June’s previous record job surge. Subcontractors are also commanding higher pay - the upturn in building activity has led construction firms to increase their use of subcontractors in recent months, although shortages of suitable subcontractors has led to construction firms having to face sharp increases in subcontractor pay rates.

The availability of subcontractors deteriorated in July to one of the greatest extents seen in the survey’s history. While subcontractor pay growth moderated very slightly in July, it continued to rise at a rate exceeding anything seen in the survey’s history prior to this year.

Shortages drive up raw material prices

In addition to rising costs for construction firms due to shortages of staff, dwindling availability of construction materials, especially bricks, is feeding through to higher prices in many cases.

Delivery times for materials from suppliers lengthened markedly again in July and have shown the greatest deterioration ever seen by the survey in recent months.