Housebuilding and accelerated upturn in new work helps UK construction output hit 11-month high in December

Driven by residential and infrastructure work, there was a positive end to 2016 for the UK construction industry with output increasing at its fastest rate since March to hit an 11-month high in December.

According to the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI), the sector grew to 54.2 in December - up from 52.8 in November - to signal a "robust and accelerated expansion of overall construction output".

With the fastest pace of growth since January 2016, the residential sector raced ahead in the final month of the year, proving that "housebuilding remains a key engine of growth for the construction sector", says Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS Construction PMI.

It is the fourth consecutive month the index has posted above the 50.0 no-change mark and anecdotal evidence suggests that improving order books and a general rebound in business conditions had helped to lift construction output in December.

Residential building activity remained the best performing sub-category in December, while work on civil engineering projects picked up at a robust pace and commercial construction also increased marginally.

New business volumes expanded at the strongest rate since January 2016, as survey respondents cited rising client demand and a resilient economic backdrop.

Companies reported a reasonably upbeat assessment for their growth prospects in 2017 with almost half of the survey respondents (48 per cent) anticipating a rise in business activity during the next 12 months, while only 13 per cent forecast a reduction.

“December’s survey data confirmed a solid rebound in UK construction output during the final quarter of 2016," said Moore.

"All three main areas of construction activity have started to recover from last summer’s soft patch, but in each case growth remains much
weaker than the cyclical peaks seen in 2014.

“Commercial activity was the weakest performing category in December, reflecting an ongoing drag from subdued investment spending and heightened economic uncertainty.

“The main negative development in December was a sustained acceleration in input cost inflation to its strongest since 2011. UK construction companies noted that the weaker sterling exchange rate had resulted in higher costs for a wide range of imported materials, while some also reported that forward purchasing of inputs had led to depleted stocks among suppliers.”

David Noble, group chief executive officer at the Chartered Institute of Procurement & Supply, said: “The residential sector raced ahead this month, with the fastest pace of growth since January 2016.

"Strong pipelines of new work were reported across all sub-sectors, and construction firms showed improved confidence after the impacts of uncertainty around the EU referendum.

“Prices continued on their upward inflationary trajectory, at the strongest rate for five and a half years.

"In response, firms have increased their stock buying to not only fulfil new orders, but also to counteract anticipated price increases throughout the year, as inflationary pressures are set to continue and the weakness of the pound persists. Stock levels at suppliers were also under pressure, as vendor performance deteriorated to the greatest extent since June 2015.

“With these more resilient economic conditions, the sector also reported the fastest pace of job creation since May 2016, as companies developed their workforces to meet new projects.

“In the short-term at least, the sector looks set to enjoy these improved demand conditions for the coming months, which is positive news after many months of instability.”

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