CIPS News


UK PMI - Construction output rises in October, driven by housing activity

CIPS 2 November 2016

At 52.6 in October, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI® ) edged up from 52.3 in September.

 

Business activity increases at fastest pace since
March
 Residential work remains key growth engine
 Input price inflation close to its highest since mid-
2011
UK construction companies recorded a sustained
expansion of overall business activity in October,
led by another solid increase in residential work.
New order volumes also picked up across the
construction sector, but the rate of growth eased
since September and remained weaker than seen
prior to this summer. This contributed to a drop in
business confidence regarding the year-ahead
growth outlook, with the latest reading the secondlowest
since May 2013. At the same time, input costs rose at one of the fastest rates seen over the
past five years, which survey respondents widely
linked to the weaker pound.
At 52.6 in October, the seasonally adjusted
Markit/CIPS UK Construction Purchasing
Managers’ Index®
(PMI®
) edged up from 52.3 in
September and remained above the 50.0 nochange
threshold for the second month running.
The latest reading pointed to the fastest upturn in
activity since March, although the rate of growth
was only modest and still much softer than the
average since the recovery began three-and-a-half
years ago (57.3).
Housing activity remained the key growth driver
across the construction sector in October. Latest
data signalled a solid increase in residential
building work, and the pace of expansion was only
slightly weaker than September’s eight-month
peak. There was also a stabilisation in
commercial construction activity during October,
while civil engineering decreased slightly and
was the weakest performing broad category of
activity.
New business growth was only moderate in
October and still much weaker than seen during
the first quarter of 2016. Some firms noted that
Brexit-related uncertainty had continued to act as
a brake on client confidence and resulted in
delayed spending decisions. Nonetheless,
construction companies reported a further upturn
in their staffing levels and purchasing activity
during the latest survey period. The rise in input buying was the fastest since March, which
contributed to a sharper deterioration in supplier
performance in October.
Input prices increased at the second-fastest rate
since July 2011 (exceeded only by the rise in
costs reported this August). Anecdotal evidence
suggested that suppliers had sought to pass on
higher imported raw material prices following the
sharp depreciation of sterling against the US dollar
and euro. Some construction companies also
pointed to greater transportation costs in October. 
Looking ahead, the number of construction firms
expecting a rise in business activity over the
next 12 months (43%) continued to exceed those
that forecast a reduction (14%). However, the
latest reading was down markedly since
September and the second-lowest since May
2013. A number of survey respondents cited the
impact of Brexit uncertainty on investor sentiment,
alongside reduced confidence towards the general
economic outlook. 
David Noble, Group Chief Executive Officer at
the Chartered Institute of Procurement & Supply,
said:
“Housing proved to be the most resilient driving
force behind the continued moderate expansion of
activity – the fastest since March, but, the level of
new order growth was at a weaker level than seen
earlier in the year.
“Supplier performance deteriorated slightly
reflecting the ongoing trend of low stocks seen in
the last few months, as the level of input buying
increased at its fastest rate since March.
“A rise in input prices due to the weak pound
resulted in the second-fastest increase in cost
pressures since mid-2011.
“Respondents reported a squeeze on margins,
while increased marketing and new projects helped
counteract the continuing uncertainty surrounding
the Brexit aftermath. Coupled with concerns around
the longer-term performance of the UK economy,
this dampened overall business optimism to its
second-lowest level since May 2013.”

Markit/CIPS UK Manufacturing PMI®

- Business activity increases at fastest pace since March

- Residential work remains key growth engine

- Input price inflation close to its highest since mid-2011

UK construction companies recorded a sustained expansion of overall business activity in October, led by another solid increase in residential work. New order volumes also picked up across the construction sector, but the rate of growth eased since September and remained weaker than seen prior to this summer. This contributed to a drop in business confidence regarding the year-ahead growth outlook, with the latest reading the second lowest since May 2013. At the same time, input costs rose at one of the fastest rates seen over the past five years, which survey respondents widely linked to the weaker pound.

At 52.6 in October, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) edged up from 52.3 in September and remained above the 50.0 no change threshold for the second month running.The latest reading pointed to the fastest upturn in activity since March, although the rate of growth was only modest and still much softer than the average since the recovery began three-and-a-half years ago (57.3).

Housing activity remained the key growth driver across the construction sector in October. Latest data signalled a solid increase in residential building work, and the pace of expansion was only slightly weaker than September’s eight-month peak. There was also a stabilisation in commercial construction activity during October, while civil engineering decreased slightly and was the weakest performing broad category of activity.

New business growth was only moderate in October and still much weaker than seen during the first quarter of 2016. Some firms noted that Brexit-related uncertainty had continued to act as a brake on client confidence and resulted in delayed spending decisions.

Nonetheless,construction companies reported a further upturn in their staffing levels and purchasing activity during the latest survey period. The rise in input buying was the fastest since March, which contributed to a sharper deterioration in supplier performance in October. Input prices increased at the second-fastest rate since July 2011 (exceeded only by the rise in costs reported this August). Anecdotal evidence suggested that suppliers had sought to pass on higher imported raw material prices following the sharp depreciation of sterling against the US dollar and euro. Some construction companies also pointed to greater transportation costs in October. 

Looking ahead, the number of construction firms expecting a rise in business activity over the next 12 months (43%) continued to exceed those that forecast a reduction (14%). However, the latest reading was down markedly sinceSeptember and the second-lowest since May2013. A number of survey respondents cited the impact of Brexit uncertainty on investor sentiment, alongside reduced confidence towards the general economic outlook. 

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said: “Housing proved to be the most resilient driving force behind the continued moderate expansion of activity – the fastest since March, but, the level of new order growth was at a weaker level than seen earlier in the year.

“Supplier performance deteriorated slightlyreflecting the ongoing trend of low stocks seen inthe last few months, as the level of input buying increased at its fastest rate since March.

“A rise in input prices due to the weak pound resulted in the second-fastest increase in cost pressures since mid-2011.

“Respondents reported a squeeze on margins,while increased marketing and new projects helped counteract the continuing uncertainty surrounding the Brexit aftermath. Coupled with concerns around the longer-term performance of the UK economy,this dampened overall business optimism to its second-lowest level since May 2013.”

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