By David Milliken

LONDON (Reuters) – Activity in the UK construction industry increased last month at its weakest pace since February amid shortages of building materials and contractors, adding to signs of bottlenecks post-COVID in the economy.

The IHS Markit / CIPS Construction Purchasing Managers Index (PMI) fell from 66.3 to 58.7 in July. It was the lowest PMI reading since February and the biggest month-over-month decline since April 2020, Britain’s first full month of COVID lockdown.

While the PMI still points to solid growth in the sector, economists polled by Reuters expected a much smaller slowdown to a reading of 64.0.

“Long delivery times for materials and decreased availability of subcontractors were cited as factors hampering work on site,” said Tim Moore, chief economic officer of IHS Markit.

Some construction companies have also reported that a spike in demand when foreclosure restrictions were first relaxed earlier in 2021 is now starting to fade.

Separate data released overnight by the Royal Institution of Chartered Surveyors painted a similar picture of supply constraints, including growing shortages of masons, carpenters and quantity surveyors.

The UK economy is rebounding rapidly this year after suffering its biggest drop in production in more than three centuries in 2020.

But there has been a surge in inflationary pressures due to a mix of higher oil prices and supply chain bottlenecks as the global economy emerges from months of lockdown.

The Bank of England is expected to revise its inflation forecast later Thursday, and some economists estimate UK inflation – currently 2.5% – to peak in 10 years of around 4% by the end of the year .

The BoE, like most other central banks, expects this spike in inflation to subside next year once the initial effects of lifting the lockdowns have passed.

The construction PMI highlighted strong inflationary pressures in the pipeline, with construction firm costs rising only slightly slower than the 24-year high recorded in June.

“Supply imbalances have been magnified by lack of transport availability, port congestion and Brexit-related trade frictions,” IHS Markit said.

(Reporting by David Milliken; Editing by Hugh Lawson)