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Construction output growth rebounds at the start of 2015

Tuesday, February 03, 2015

Markit/CIPS UK Construction PMI®

Construction output growth rebounds at the start of 2015 

- Growth of business activity picks up from December’s 17-month low
- New business levels rise at an accelerated pace in January...
- ...but job creation eases to its weakest for 13 months

January data pointed to a positive start to the year for the UK construction sector, with output and new business growth rebounding from the lows seen in December. That said, the rate of job creation slipped to a 13-month low and construction firms’ assessment of the business outlook was the second-lowest seen since October 2013. 

At 59.1 in January, up from 57.6 in December, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) pointed to a robust and accelerated expansion of overall business activity at the start of 2015. The index has registered above the neutral 50.0 threshold for 21 months running, although the latest reading was the still second-lowest seen since September 2013. As a result, the latest survey indicated that overall growth momentum rebounded since December, but was much weaker than the average for 2014 as a whole (61.8).  

All three broad areas of construction activity picked up since December, but in each case the rate of expansion was weaker than the peaks seen in 2014. Residential building was the best performing sub-category in January, with the latest survey marking two years of continuous expansion. Meanwhile, latest data also indicated a robust rise in commercial construction and a rebound in civil engineering activity following the decline recorded in December.

In line with the trend for business activity, volumes of new work increased at a robust and accelerated pace in January. The latest upturn in new work was the fastest for three months, albeit still well below the average for 2014 as a whole. Meanwhile, the rate of job creation eased for the second month running to its weakest since December 2013. Some firms suggested that softer new business gains in recent months had contributed to a slowdown in employment growth at their units.

Supply chain pressures persisted in January, as highlighted by a sharp deterioration in vendor performance. Anecdotal evidence suggested that strong demand for construction materials and shortages of spare capacity among suppliers had contributed to longer delivery times at the start of 2015.

The availability of sub-contractors decreased sharply during January, while the latest rise in sub-contractor charges was close to the survey-record high recorded in November 2014. Overall input cost inflation nonetheless eased to its weakest since April 2013, helped by falling energy and fuel prices.

Looking ahead, almost half of the survey panel forecast a rise in business activity over the next 12 months, while less than one-in-ten anticipate a reduction. However, the degree of business optimism was the second-lowest since October 2013, with some firms citing heightened uncertainty about the overall economic outlook.

Commenting on the report, David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said:

“After the disappointing end to last year and the drop in the industry’s fortunes, the construction sector has had a perky start with good activity across all sectors.

“Though the month’s activity was well below the highs of the peak recovery months, the modest increase in growth may beat away any wider concerns around an unsustained improvement in the sector’s fortunes. This is borne out by half of the procurement and supply management professionals who were optimistic about the year ahead.

“New orders were up, but staffing levels have yet to catch-up showing at their lowest level of growth for 13 months, which may slow down activity as companies struggle to keep up with new demand. With supply chains under pressure, supply shortages, longer delivery times and a sharp fall in the performance of suppliers, there may still be challenges ahead.

“Falling input prices have helped the sector control spending costs; though the advantage was not as great as for other sectors. Uncertainty about the continued recovery of the wider economy and the possible changes brought on by a looming General Election may keep the sector from performing at the high levels seen this time last year."