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Wed April 17 2024

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Construction growth edges up again in April

3 May 17 UK construction companies have reported a solid start to the second quarter of 2017, helped by faster rises in civil engineering and residential building activity.

The monthly survey of construction purchasing managers indicates that April data saw the strongest rise in new work so far this year, which survey respondents linked to the resilient economic backdrop and a sustained improvement in client demand.

Greater workloads underpinned a further increase in employment numbers and the most marked rise in input buying since November 2016.

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

With a score of 53.1, up from 52.2 in March, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) pointed to a solid rise in overall construction output. The latest reading was well below the post-crisis peak seen in January 2014 (64.6), but still signalled the sharpest rate of expansion so far this year. Civil engineering was the best performing sub-category of construction activity in April, with the rate of expansion the fastest since March 2016. Growth of residential building also accelerated, reaching a four-month high.

Commercial building work increased only slightly and at a weaker pace than in March. 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.

However, mirroring the trend seen for business activity, the latest upturn in new work remained much slower than seen at the peak phase of the recovery in early-2014.

Higher volumes of new work encouraged further job creation across the construction sector in April. The rate of employment growth was the strongest since May 2016. Survey respondents indicated additional pressures on the availability of subcontractors during April, which added to signs of challenges in recruiting skilled labour.

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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%) expect a rise in construction output over the year ahead as those that forecast a fall (10%). The degree of confidence was down fractionally since March, but still well above the post-referendum low seen in July 2016.

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 subcontractor 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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