Increase in housebuilding and civil engineering in April helps construction record its sharpest output rise of 2017

Residential building activity rose to a four-month high and civil engineering projects grew for the second consecutive time as the construction sector recorded its biggest monthly output rise of 2017 in April.

Expanding at its fastest pace for more than a year, the civil engineering sector was the best performing sub-category, while residential building accelerated at its highest rate since January as construction companies reported a solid start to the second quarter.

Commercial building work also increased but at a weaker pace than in March.

With a rise in overall construction output, the latest Markit/CIPS UK Construction Purchasing Managers’ Index rose to 53.1 in the fourth month of year - up from 52.2 in March.

According to the report, a resilient economic backdrop and a sustained improvement in client demand led to an upturn in incoming new work and the most marked rise in input buying since November 2016.

And while greater workloads saw an increase in employment not seen since last May, survey respondents also indicated additional pressures on the availability of sub-contractors during April.

However, robust demand for construction materials and upward pressure on costs from sterling depreciation resulted in another steep increase in input prices during April.

April data pointed to a solid upturn in new work received by UK construction companies, with the rate of expansion the strongest seen so far this year.

Demand for construction materials increased in response to a sustained upturn in new work, as highlighted by a renewed upturn input buying during April. This contributed to a sharp and accelerated deterioration in vendor performance, with lead-times from suppliers lengthening to the greatest degree since June 2015.

Average cost burdens increased sharply in April, although the rate of inflation continued to moderate from the five-and-a-half year peak seen at the start of 2017. Higher prices were linked to exchange rate factors, as well as increased energy and fuel costs.

Meanwhile, around five times as many survey respondents (49 per cent) expect a rise in construction output over the year ahead as those that forecast a fall (10 per cent). The degree of confidence was down fractionally since March, but still well above the post-referendum low seen in July 2016.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, said: “With the biggest rise in new orders since the beginning of the year, the sector is in a strong pre-election position buoyed up by a hardy UK economy and strong client confidence. The housing sector offered up the best news recovering from last month’s minor blip and building on its strongest performance since the end of last year.

“Employment growth rose to its highest since May 2016, though continued disquiet about the lack of highly-skilled labour availability persisted and which must be addressed if the future strength of the sector is to be assured. Combined with the vexatious conditions of rising commodity and labour costs, low stocks of essential materials and longer delivery times frustrated buyers and added drag to the completion of planned projects.

“But with only a slight dip in business confidence from last month, the sector has proven to be resilient, so the UK Government must take extra steps to ensure the General Election does not knock the sector back into a period of uncertainty and uneven progression, as seen during the referendum months.”

Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS Construction PMI® , said: “April’s survey reveals a positive start to the second quarter of 2017, with a robust upturn in civil engineering activity helping to boost the construction industry. There were also more encouraging signs from the house building sector, as growth recovered to its strongest so far this year. However, the performance of the commercial building sector remained subdued in the context of the past four years.

“UK construction companies noted that the resilient economic backdrop helped to drive up client spending in April. Greater workloads led to the fastest pace of job creation since May 2016 and a continued squeeze on sub-contractor availability.

“Supply chain pressures also intensified, as highlighted by the largest lengthening of delivery times for almost two years. A sharp rate of input cost inflation persisted in April, reflecting an ongoing pass-through of higher commodity prices, imported goods and energy costs. However, the recent recovery in sterling may have started to help limit some cost pressures in April, as the overall rate of input price inflation moderated to a six-month low.”

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