Construction activity increases but house building and new orders slow amid soaring costs

Civil engineering led growth as output in the UK construction industry rose for the sixth consecutive month in February, but housebuilding slumped to a six-month low as costs soared to an eight-year high, the latest statistics reveal.

The seasonally adjusted Markit/CIPS Construction Purchasing Managers' Index (PMI) edged up to 52.5 from the 52.2 recorded in January, with civil engineering replacing housebuilding as the main growth driver.

Residential activity increased at the slowest pace since last September, while commercial building declined for the first time since October. And new work also increasing at the slowest pace since the 10th month of 2016.

Despite a slowdown in new business growth to its weakest for four months, there was a further solid expansion of employment numbers, despite, while intense cost inflation persisted in February, which was overwhelmingly linked to higher prices for imported materials.

Some construction companies noted that sharply rising input costs had an adverse impact on decision-making and contributed to delays in contract completions.

Strong demand for house building projects was cited as a key factor likely to boost construction output with companies remaining upbeat about their growth prospects for the next 12 months. Almost half (48 per cent) forecast a rise in business activity with only 13 per cent expecting a decline.

Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS Construction PMI, said: “February’s survey data highlights that the UK construction sector has rebounded from its post referendum soft patch but remains on a relatively slow growth trajectory. Weaker momentum in the house building sector was a key factor weighing on construction growth, alongside a renewed fall in work commercial projects.

“There was little sign that the UK storms had a material impact on construction growth in February, although some firms noted that longer delivery times for roof tiles had added to supply chain issues.
Instead, survey respondents mainly cited an underlying slowdown in sales growth, with the latest rise in new work the weakest for four months. In some cases, construction companies reported that sharply rising input prices had a disruptive impact on contract negotiations.

“February data revealed that input cost inflation remained at levels last seen in the summer of 2008. Suppliers’ efforts to pass on rising energy costs and global commodity prices have been amplified by the
weak sterling exchange rate.”

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, said: “Suppliers were challenged this month as they groaned under the weight of higher demand and
some material shortages, with the sharpest drop in performance since June 2015. This impacted on the sector’s overall pace of activity, as delivery times lengthened for bricks, blocks and roofing tiles.

“Housing was singled out as a drag with its weakest performance for six months. As a previous driver of growth, there will be concerns about this softening of house building activity. The drop in sub-contractor availability was the largest seen since January 2016, against a backdrop of rising employment numbers across the construction sector, which will add to worries around labour market capacity as we move along the path to Brexit.

“But overall, the sector’s optimism was still high as workloads remained strong, propped up by the prospect of new projects and repeat business. Though the level of new orders was modest, it is the relentless and brutal rise in prices for construction materials, combined with the impact of the weaker pound, that could block the sector’s progress in the coming months.”

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