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Sun November 28 2021

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Construction reports brightest outlook in seven years

3 Apr 14 Improving underlying demand and more favourable business conditions have helped business optimism in construction reach its highest level since January 2007.

March data from the Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) signalled a strong overall performance for the UK construction sector, with sharp rises in activity and employment maintained. Although new business growth slipped to a six-month low, construction firms remain highly upbeat about the prospects for output over the year ahead.

The PMI posted 62.5 in March, little changed from 62.6 in the previous month but lower than the near six-and-a-half year high recorded during January (64.6). Nonetheless, the latest reading signalled a steep overall expansion of UK construction activity, and the index has now registered above the 50.0 no-change value for 11 months in a row.

Housing activity regained its place as the best performing category of construction in March, driven by improving underlying demand across the sub-sector. The upturn in residential construction growth partly reflected a rebound in output following some weather-related disruptions in the previous month.

Meanwhile, the rate of civil engineering output growth slowed markedly in March, following a survey-record high during February driven by flood-relief. Commercial construction activity continued to rise sharply amid improving economic fundamentals.

Volumes of new work increased for the eleventh successive month in March, although the rate of expansion eased to its least marked since September 2013.

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Tim Moore, senior economist at Markit said: “Expectations for construction growth over the year ahead have now reached their highest since the start of 2007, and a strong pipeline of new work is fuelling job creation across the sector. “However, the latest survey does little to dispel concerns that supplier capacity will become a fly in the ointment. Lead-times for the delivery of construction materials lengthened in March by one of the greatest amounts since the survey began in April 1997, while sub-contractor availability fell at the fastest rate for thirteen-and-a-half years.”

Increased work on new projects contributed to a sharp rise in employment numbers across the construction sector. The rate of job creation picked up over the month and was the second-fastest since August 2007. Increased staffing levels were partly linked to improving confidence about the outlook for construction activity over the next 12 months.

The degree of positive sentiment was the highest since January 2007, with around 59% of survey respondents anticipating a rise over the year ahead and only 5% forecasting a reduction.

Input buying continued to increase sharply and cost inflation remained strong in March. There were further signs of strains on supply chains, as delivery times for raw materials lengthened to the second-greatest extent since July 1997, exceeded only by the deterioration experienced last November. There were widespread reports that pressures on supplier capacity had resulted in longer lead-times. Meanwhile, construction firms also indicated that sub-contractor availability decreased at the fastest pace since September 2000.

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, said that condfidence in construction is soaring thanks to the budget boost and dissipating the impact of the floods. “Optimism is at its highest level since January 2007, complemented by an 11th consecutive month of increased activity. This is reflected in employment too where the sector maintained expansion and grew at its fastest pace in four months.”  

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