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Mon December 11 2017

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News » UK » Construction output makes modest rebound » published 4 Dec 2017

Construction output makes modest rebound

Construction output appears to have rebounded slightly in November, with business activity rising at its strongest rate since June.

The latest monthly survey of construction purchasing managers indicates that new orders and employment numbers also increased more than they had done in recent five months.

However, the improvement in construction growth was largely confined to residential work. Civil engineering is now experiencing its longest period of decline since the first half of 2013.

Adjusted for seasonal influences, the IHS Markit/CIPS UK construction purchasing managers’ index (PMI) picked up from 50.8 in October to 53.1 in November. The latest reading was the highest for five months and above the 50.0 no-change value for the second month running.

House building projects were again the primary growth engine for construction activity. Survey respondents suggested that resilient demand and a supportive policy backdrop had driven the robust and accelerated upturn in residential work.

Commercial construction was the weakest performing area of activity in November, which continued the trend seen for much of 2017 so far.

Some firms noted that Brexit-related uncertainty and the subdued economic outlook had held back spending among clients.

Meanwhile, civil engineering activity fell for the third successive month, which represents the longest phase of decline seen for over four years. That said, the latest drop in work on civil engineering projects was only marginal. Some survey respondents commented on hopes that forthcoming tender opportunities on infrastructure programmes (particularly energy and transport) would help to support workloads. Construction companies indicated a moderate rebound in new orders in November, with the rate of expansion the fastest for five months. Anecdotal evidence cited a general improvement in client demand after the soft patch this summer.

Higher levels of new work helped to support a moderate rise in staff numbers and input buying in November. Lead-times for construction products and materials lengthened sharply, linked to pressure on supplier capacity. However, cost inflation eased to its least marked for 14 months, with some firms reporting signs that exchange-rate driven price rises had started to lose intensity.

Business confidence regarding the year-ahead outlook for construction activity remained among the most subdued since mid-2013, which panel members mainly linked to heightened political and economic uncertainty. However, the degree of optimism picked up from October’s 58-month low, helped by a modest recovery in new invitations to tender during the latest survey period.

Tim Moore, associate director at IHS Markit and author of the IHS Markit/CIPS Construction PMI, said: “UK construction companies experienced a solid yet uneven improvement in business conditions during November. Once again, resilient house building growth helped to offset lower volumes of commercial work and civil engineering activity.

“Survey respondents noted that residential projects underpinned the rebound in total new order growth to its strongest since June, helped by strong demand fundamentals and a supportive policy backdrop.

“Construction firms reported that heightened economic and political uncertainty continued to hold back commercial development activity. The latest drop in civil engineering was linked to a recent lack of tender opportunities for infrastructure-related projects.

“Business optimism across the construction sector remained relatively subdued, but picked up from the near five-year low seen in October. This represented the first improvement in confidence for three months, which construction firms attributed to increased sales enquiries and hopes that risk aversion among clients will recede over the course of next year.”

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, said: “At last the construction sector, has picked its feet up with the biggest overall improvement in five months, underpinned by a moderate rise in new orders, but the strongest since June.

“It appears that policy support and a small recovery in the UK economy has boosted sentiment and encouraged clients to come out of their shells and start building again. The housing sector was the primary driver of growth increasing at the fastest rate for almost half a year.

“However it is private sector companies that need to commit to big ticket spending, with commercial development still underperforming as persistent Brexit uncertainty continues to bite. Concerns over civil engineering in particular are also prevalent with its downward course the longest since 2013 and linked to a shortfall of new tender opportunities.

“Across construction supply chains, delivery times have been under pressure, as materials were in higher demand, while stocks remained in short supply. Lead-times from vendors have now deteriorated in every month for over seven years.

“Overall, the sector showed an incremental improvement, but business optimism was on the rise and up from last month’s five-year low. Perhaps the darkest days are behind the sector with fresh impetus on the horizon for the New Year.”

 

 

MPU

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This article was published on 4 Dec 2017 (last updated on 6 Dec 2017).

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