Commercial building boosts UK construction sector

5 January 2016

An increase in commercial building activity helped the construction industry rebound in December, according to a survey of purchasing managers.

Commercial construction rose at its fastest rate since last October while output growth increased from its seven-month low in November, according to the Markit/CIPS UK Construction Purchasing Managers' Index.

The index, where a figure above 50 indicates expansion in the sector, registered 57.8 in December up from 55.3 recorded in November, and survey respondents attributed improving economic conditions to higher demand for commercial projects, although housing activity also increased at a robust rate, the survey showed.

However, civil engineering activity declined marginally, ending a seven-month period of sustained growth.

New business increased with survey respondents reporting improved willingness among clients to commit to new projects. This boosted job creation in December, causing the rate of employment growth to rebound from its 26-month low in November.

Just over half of those surveyed anticipated a rise in business activity this year, with only 7 per cent forecasting a fall. The survey noted this was the weakest amount of positive sentiment since February, but well above its post-crisis average.

Bigger client budgets, improving economic conditions and a strong pipeline of new projects were the reasons for business confidence in December, according to respondents.

David Noble, group CEO, CIPS, said: “With both new orders and general business activity on the rise, this month saw a considerable spike in purchasing activity and the second fastest increase since January 2015, amid an environment where suppliers struggled more as lead times lengthened.

“This was a welcome surprise to the end of the year. The perfect conditions of lower commodity prices, helping bring cost inflation close to April’s six-year low, and a supportive UK economy have given the sector a solid foundation to build on with continued positive sentiment for the year ahead.”

Tim Moore, senior economist at Markit, said: “Civil engineering remained the weakest performing area of construction in December. Nonetheless, civil engineering activity looks set to experience a near-term spike at the turn of 2016 from spending related to flood relief and additional capital budgets. In the immediate aftermath of the winter 2013/14 floods, UK civil engineering activity picked up at a survey-record pace.”

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