Construction firms report brightest outlook for business activity since January 2007

CIPS 2 April 2014

Confidence about the 12-month outlook hits highest level since January 2007

- Confidence about the 12-month outlook hits highest level since January 2007
- Overall output growth broadly unchanged in March...

- ...with housing the best performing construction category

March data signalled a strong overall performance for the UK construction sector, with sharp rises in activity and employment maintained during the latest survey period. Although new business growth slipped to a six-month low, construction firms remain highly upbeat about the prospects for output over the year ahead. Reports of improving underlying demand and more favourable business conditions helped business optimism reach its highest level since January 2007.

Adjusted for seasonal factors, the Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) posted 62.5 in March, little changed from 62.6 in the previous month but lower than the near six-and-a-half year high recorded during January (64.6). Nonetheless, the latest reading signalled a steep overall expansion of UK construction activity, and the index has now registered above the 50.0 no-change value for 11 months in a row.

Housing activity regained its place as the best performing category of construction in March, driven by improving underlying demand across the sub-sector. The upturn in residential construction growth partly reflected a rebound in output following some weather-related disruptions in the previous month.

Meanwhile, the rate of civil engineering output growth slowed markedly in March, following a flood relief driven survey-record high during February. Commercial construction activity continued to rise sharply amid improving economic fundamentals, with the pace of expansion again close its fastest since the summer of 2007.

Volumes of new work increased for the eleventh successive month in March, although the rate of expansion eased to its least marked since September 2013. Increased work on new projects contributed to a sharp rise in employment numbers across the construction sector. The rate of job creation picked up over the month and was the second-fastest since August 2007.

Increased staffing levels were partly linked to improving confidence about the outlook for construction activity over the next 12 months. The degree of positive sentiment was the highest since January 2007, with around 59% of survey respondents anticipating a rise over the year ahead and only 5% forecasting a reduction.

Input buying continued to increase sharply and cost inflation remained strong in March. There were further signs of strains on supply chains, as delivery times for raw materials lengthened to the second-greatest extent since July 1997, exceeded only by the deterioration experienced last November. There were widespread reports that pressures on supplier capacity had resulted in longer lead-times. Meanwhile, construction firms also indicated that sub-contractor availability decreased at the fastest pace since September 2000.

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

“Confidence in construction is soaring thanks to the budget boost and dissipating impact of the floods in a ringing endorsement the recovery will continue. Optimism is at its highest level since January 2007, complemented by an 11th consecutive month of increased activity. This is reflected in employment too where the sector maintained expansion and grew at its fastest pace in 4 months.

“As the rain gave way to sun, the housing market reclaimed its spot as the star performer. Commercial activity continued to rise strongly, benefitting from the positive business conditions. By contrast, civil engineering activity slowed somewhat, perhaps not that surprising following last month’s stellar figures.

“The rapid pace of expansion, which started last summer, is continuing to stretch resources and supplier capacity however, with delivery times lengthening to a level seen only once since July 1997. Supply constraints have now been around for a long time, and with rising cost inflation, are a growing concern that could hold the sector back."

The Markit/CIPS PMIs are available to purchase.

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