Encouraging first quarter for construction

4 April 2011
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4 April 2011 | Angeline Albert 

March brought a strong expansion of activity in the UK construction sector, with the seasonally adjusted Markit/CIPS Construction Purchasing Managers’ Index (PMI) posting 56.4.

This figure was only slightly weaker than February’s eight-month high of 56.5 index points. Crucially both were above the no-change mark of 50.

While growth in March was evident, the rate of cost inflation intensified to its highest point since mid-2008, driven by higher raw material prices, particularly for fuel, oil and steel.

Purchasing activity at UK construction companies increased last month, reflecting higher output requirements. This led to a lengthening of suppliers’ delivery times, with delays heightened by shortages of materials at vendors.

New business increased for a 13th successive month. The latest rise was attributed to increased opportunities to tender and previously quoted work converting to firm contracts. However, new order growth slowed indicating that a reduction in activity is likely over the coming months.

“UK construction companies reported a strong end to the first quarter, with activity rising at a similar pace to the eight-month high recorded in February,” said Markit economist Sarah Ledger. “The data therefore add to the generally positive flow seen since the new year, adding to evidence that the economy rebounded strongly from the surprise contraction of GDP in the final quarter of last year. However, whether the resurgent growth will prove long-lasting remains in doubt.”

Despite growth in March, confidence in the market has been dampened by concerns over the government’s public sector cuts.     

CIPS chief executive, David Noble, added: “The spectre of spending cuts is causing the greatest concern, particularly as government stimulus starts to crumble. We may also be at the tail end of temporarily higher activity levels seen after the weather disruption of Q4 last year. Similarly, although March saw the third monthly growth in a row of residential construction activity and staff reduction was its weakest in many months, other indicators showing continued volatility in house prices and poorer consumer confidence mean there is still a great deal of uncertainty.”

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