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Construction industry confidence reaches dizzying new heights

2 Apr 15 The latest monthly survey of construction purchasing managers has found business confidence to be its highest level in the industry for more than nine years.

Only 3% of respondents expect construction output to fall over the next 12 months
Only 3% of respondents expect construction output to fall over the next 12 months

Rising optimism comes in spite of a slight slowdown in reported growth during March.

The headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) posted a score of 57.8 in March, down from 60.1 in February and the lowest for three months, but still well above the 50.0 no-change value.

As a result, the latest reading pointed to a strong rate of overall construction output growth, albeit one that was below the average for 2014 as a whole (61.8).

All three broad areas of construction activity saw a loss of momentum since February. Housing remained the best performing sub-sector, followed by commercial construction. Meanwhile, civil engineering output growth eased markedly since the previous month and was the weakest performing category of activity.

New business volumes continued to rise at a strong pace in March, the survey found, although the rate of expansion eased from February’s four-month high. Companies that reported an upturn in new orders generally cited improving economic conditions and greater underlying client demand. However, some construction firms noted that uncertainty related to the forthcoming general election had encouraged clients to delay spending decisions.

Strong cost pressures persisted across the UK construction sector in March. Anecdotal evidence widely suggested that stock shortages at suppliers and robust demand for construction materials had led to increased input prices. Moreover, delivery times from vendors worsened during the latest survey period, with firms reporting extended lead times for a range of inputs (especially bricks).

The marked upturn in business confidence was underpinned by improving order books and sustained rises in new invitations to tender. More than half of the survey panel (57%) forecast a rise in output over the year ahead, while only 3% expect a fall, which equates to the strongest degree of construction sector optimism since February 2006.

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Markit senior economist Tim Moore, author of the Markit/CIPS Construction PMI, said: “UK construction output growth has settled in at a strong pace so far in 2015, although the recovery has lost some of its swagger since last year. All three main categories of construction activity saw a growth slowdown in March, in part reflecting softer new business gains as some clients delayed spending decisions ahead of the general election.

“However, UK construction companies are highly upbeat about their prospects for growth over the course of the next 12 months, helped by improving economic fundamentals, strong order books and a healthy pool of new invitations to tender.”

David Noble, chief executive of the Chartered Institute of Procurement & Supply, which sponsors the report, said: “The construction sector’s strong recovery took on a gentler, quieter pace, with the housing sector continuing to lead the way ahead – but only just, and with the commercial sector a close second.

“A hint of restraint prevented employment levels rising much further. Some firms attributed slower momentum to concerns about the looming general election, but new business still rose at a respectable pace compared to the average over the last few years.

“Strong demand for construction materials was a key development and though major shortages are not yet apparent, there is some evidence that suppliers of construction materials must up their energy levels to quicken delivery times and raise capacity.

“The main takeaway from this month must be the highest levels of confidence seen in the construction sector for almost a decade. Though there may be some low-level obstacles still to come, the sector gets the green light as there is evidently belief that the future for the construction sector is a sustainable one.”

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