Output and new business growth rebounded after recent modest dips. However, the rate of job creation slipped to a 13-month low and optimism appears to be fading a little.
At 59.1 in January, up from 57.6 in December, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) pointed to a solid expansion of overall business activity at the start of 2015. The index remains well above the neutral 50.0 threshold, where it has now been for 21 consecutive months, although the latest reading was below the 2014 monthly average of 61.8 and the second-lowest reading since September 2013.
All three broad areas of construction activity picked up in January, but in each case the rate of expansion was weaker than the peaks seen in 2014. Residential building was the best performing sub-category in January, with the latest survey marking two years of continuous expansion. Meanwhile, latest data also indicated a robust rise in commercial construction and a rebound in civil engineering activity following the decline recorded in December.
In line with the trend for business activity, volumes of new work increased at a robust and accelerated pace in January. The latest upturn in new work was the fastest for three months, albeit still well below the average for 2014 as a whole. Meanwhile, the rate of job creation eased for the second month running to its weakest since December 2013. Some firms suggested that softer new business gains in recent months had contributed to a slowdown in employment growth at their units.
Supply chain pressures persisted in January, as highlighted by a sharp deterioration in vendor performance. Anecdotal evidence suggested that strong demand for construction materials and shortages of spare capacity among suppliers had contributed to longer delivery times at the start of 2015.
The availability of subcontractors decreased sharply during January, while the latest rise in subcontractor charges was close to the survey-record high recorded in November 2014. Overall input cost inflation nonetheless eased to its weakest since April 2013, helped by falling energy and fuel prices.
Looking ahead, almost half of the survey panel forecast a rise in business activity over the next 12 months, while fewer than one-in-ten is anticipating a reduction. However, the degree of business optimism was the second-lowest since October 2013, with some firms citing heightened uncertainty about the overall economic outlook.
Markit senior economist Tim Moore said: “UK construction companies have found their feet again after a protracted slowdown in output growth at the end of 2014. Stronger trends were recorded across housing, commercial and civil engineering, although each category of activity still experienced much slower growth than the high-water marks achieved last year.
“In short, the peak speed of the construction recovery seems to be over, but reports of its death have been greatly exaggerated.
“Expectations in relation to output growth over the next 12 months remained close to December’s low, contributing to a further slowdown in construction sector job creation during January. However, skill shortages persisted at the start of the year, with construction companies indicating that sub-contractor charges increased at a near survey-record pace.
“Strong demand for construction materials resulted in upward pressure on costs and lengthening delivery times from suppliers in January. That said, the latest survey highlighted that lower fuel and energy prices helped drive down overall cost inflation to its lowest for just under two years.”
David Noble, chief executive of the Chartered Institute of Procurement & Supply (CIPS), which sponsors the monthly survey, said: “After the disappointing end to last year and the drop in the industry’s fortunes, the construction sector has had a perky start with good activity across all sectors.
“Though the month’s activity was well below the highs of the peak recovery months, the modest increase in growth may beat away any wider concerns around an unsustained improvement in the sector’s fortunes. This is borne out by half of the procurement and supply management professionals who were optimistic about the year ahead.
“New orders were up, but staffing levels have yet to catch-up showing at their lowest level of growth for 13 months, which may slow down activity as companies struggle to keep up with new demand. With supply chains under pressure, supply shortages, longer delivery times and a sharp fall in the performance of suppliers, there may still be challenges ahead.
“Falling input prices have helped the sector control spending costs; though the advantage was not as great as for other sectors. Uncertainty about the continued recovery of the wider economy and the possible changes brought on by a looming general election may keep the sector from performing at the high levels seen this time last year.”
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