CIPS News


Construction sector performance rebounds in December, led by commercial building activity

CIPS 5 January 2016

Output growth accelerates from November’s seven-month low 

Markit/CIPS UK Construction PMI® 

Key points:

  • Output growth accelerates from November’s seven-month low
  • Commercial construction rises at fastest pace since October 2014 
  • Construction companies signal positive outlook for business conditions in 2016 

 

UK construction companies ended 2015 with a robust and accelerated expansion of overall business activity, thereby indicating a rebound from the slowdown recorded in November. The headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) registered 57.8 in December, up from a seven-month low of 55.3 in November. Higher levels of construction output have been recorded by the survey since May 2013, but the overall rate of expansion remained slightly weaker than seen on average over this period. 

Commercial construction remained the best performing sub-category of activity in December, with the latest upturn the fastest since October 2014. Survey respondents noted that improving UK economic conditions continued to boost demand for commercial projects. Housing activity also increased at a robust rate that was much stronger than the 29-month low seen during November. Anecdotal evidence cited an improving flow of development opportunities and new invitations to tender.

Meanwhile, a decline in civil engineering activity contrasted with the overall upward trend seen across the UK construction sector in December. The fall in civil engineering activity was only marginal, but this ended a seven-month period of sustained growth.

December data signalled a robust and accelerated increase in new business volumes, thereby mirroring the trend recorded for construction output at the end of 2015. The latest rise in new work was the second-fastest since July, which survey respondents linked to favourable demand conditions and an improved willingness among clients to commit to new projects. This in turn encouraged increased job creation among construction companies during December, with the rate of employment growth rebounding from the 26-month low recorded in November. Sub-contractor usage meanwhile picked up at the fastest pace since August 2014.

The latest survey highlighted the second-fastest increase in purchasing activity since January 2015. Strong demand for inputs, alongside an ongoing squeeze on supplier capacity, resulted in the sharpest drop in vendor performance since June. At the same time, input cost inflation moderated again in December, reaching its lowest for eight months. A number of construction firms reported lower transportation and steel costs. Moreover, sub-contractor rates increased at the slowest pace since August 2013. 

Just over half of the survey panel (51%) anticipate a rise in business activity over the course of 2016, while only 7% forecast a reduction. Although this indicated the weakest degree of positive sentiment since February, the index remained well above its post-crisis average. Survey respondents noted that greater client budgets, improving economic conditions and a strong pipeline of new projects had underpinned business confidence in December. 

Commenting on the report, David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, 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, amidst an environment where suppliers struggled more as lead times lengthened.

“Though commercial activity was the main driver of growth, the housing sub-sector remained strong, rejecting the previous 29-month low and showing solid steady increases overall since February 2013. Hirings in the construction sector also bounced back from November’s 26- month low and sub-contractors remained in demand to support increased workloads. 

“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.” 

Ends

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