Construction sector loses momentum in January but job creation hits eight-month high

Despite a slowdown in UK construction growth in January with activity at its weakest for four months, job creation hit an eight-month high in the first month of 2017, new figures reveal.

The seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) fell to 52.2 in January, down from 54.2 in December - its weakest performance since the post-referendum recovery in September 2016.

But despite the figures showing business activity and incoming new work both expanded at weaker rates than at the end of 2016, survey respondents signalled that confidence regarding the year-ahead outlook picked up to its strongest since December 2015, largely reflecting new project starts and a resilient economic backdrop.

The sustained improvement in business confidence contributed to the fastest rise in employment numbers since May 2016, while sub-contractor usage rose at the steepest pace since December 2015.

Meanwhile, exchange rate depreciation against the euro and the US dollar resulted in the strongest rate of input cost inflation since August 2008.

Although housebuilding remained the best performing category, the latest expansion was the weakest for five months and all three sub-sectors (housing, commercial and civil engineering) recorded softer rates of output growth in January.

Slower growth of business activity largely reflected a moderation in new order gains at the start of 2017.

The latest rise in new work was the least marked since October 2016. While some construction firms commented on a boost to sales from improving domestic economic conditions, there were also reports citing subdued willingness to spend among clients in January.

David Noble, group chief executive officer at the Chartered Institute of Procurement & Supply, said: “Despite the biggest rise in input costs since August 2008, the sector was in buoyant mood at the start of
the year, with highest level of confidence since December 2015.

“Continuing cost pressures from the weak pound and escalating commodity prices failed to impact significantly on purchasing volumes, as input buying increased following last month’s slight fall while job creation rose to an eight-month high. Previously stalled projects and plans were given the go-ahead as the sector ensured sufficient staff resource was in place to meet future demand.

“However, the dark cloud on the horizon was the continuing pressures on supply chains. Material shortages, lengthening delivery times and supplier performance, the weakest since June 2015, could become a roadblock to the sector’s continuing growth.

“In the short term at least, the outlook is positive, as long as economic conditions remain supportive and firms are able to control their rising costs.”

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