Sharpest rise in construction output since August 2007

CIPS 4 February 2014

Strong output growth recorded in all three sub-categories of construction

Sharpest rise in construction output since August 2007

Key points:

  • Strong output growth recorded in all three sub-categories of construction
  • Housing activity increases at sharpest pace for over ten years
  • Strong rate of job creation maintained in January

January data indicated that UK construction companies started the year with an acceleration of output growth at their units, boosted by sharp rises in incoming new work. Stronger demand resulted in a marked increase in employment numbers across the construction sector as well as improved confidence about the business outlook for the next 12 months.

Adjusted for seasonal factors, the Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) registered 64.6 in January, up from 62.1 in December and above the neutral 50.0 value for the ninth successive month. Moreover, the latest index reading pointed to the sharpest overall expansion of UK construction activity since August 2007.

Output growth at the start of 2014 reflected rising levels of activity across all three broad areas of construction monitored by the survey. Residential construction remained the best performing sub-category, with the latest expansion of housing activity the steepest since November 2003. Meanwhile, commercial building work and civil engineering activity both increased sharply during January, and in each case the latest expansion was the steepest since the summer of 2007.

Volumes of new work received by UK construction companies increased for the ninth successive month in January. In line with the trend for output, the latest overall rise in new orders was the fastest since August 2007. Anecdotal evidence from survey respondents widely suggested that an ongoing upturn in domestic economic conditions, alongside greater access to finance among clients, had boosted new business volumes at the start of the year. Moreover, latest data indicated a strong degree of positive sentiment towards the outlook for business activity over the next 12 months.

Confidence about the year-ahead outlook was the most positive since September 2009, which in turn supported job hiring in January. Higher levels of employment have now been recorded in the construction sector for eight consecutive months, which is the longest continuous period of job creation since early 2008. Higher levels of business activity meanwhile boosted input buying across the construction sector in January. The latest expansion of purchasing activity was the steepest since August 2007.

Stronger demand for construction materials contributed to a further steep deterioration in supplier performance at the start of the year. Longer vendor delivery times have been reported in each month since September 2010, which survey respondents have generally linked to reduced capacity and low stocks at suppliers. Meanwhile, latest data indicated a sharp rise in average cost burdens, despite the rate of inflation easing to a five-month low.

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

“The construction industry has started 2014 in formidable fashion, enjoying its strongest growth in six-and-a-half years reinforced by a sharp rise in new business orders. Housing activity growth was the highest in a decade and remains the fastest improving area of construction. This was supported by a solid expansion in civil engineering and commercial activity, confirming a distinctly positive picture across the board.

“Backed by positive domestic market conditions, the growth in new work is continuing to drive employment upwards, and has now been increasing for eight consecutive months. It is also pleasing to see that this is resulting in growing business confidence, with firms expecting to see more activity in the next few months.

“The one area which is beginning to be a concern is the ongoing pressure on suppliers to meet the rush in demand. As the industry’s lifeblood, suppliers are still recovering from the recession, and until they get back to full capacity, the continued lengthening of delivery times may become a restraining force on the sector in the coming months.”

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