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House-building output growing at fastest pace for a decade

2 Oct 13 The rate at which house-builders are increasing their output is now higher than at any time since November 2003, according to the latest survey of purchasing managers.

The September survey found that construction companies ended the third quarter of 2013 with a strong expansion of overall output levels and a further improvement in their new order books.

Optimism across the industry is at its highest since April 2010.

Employment numbers in construction rose in September for the fourth consecutive month, and the rate of job creation reached its fastest for just under six years.

Adjusted for seasonal influences, the headline Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) posted 58.9 in September, down only fractionally from a near six-year high of 59.1 during August. The index was above the neutral 50.0 value for the fifth month running and signalled a sharp expansion of overall construction output.

All three broad areas of the construction sector posted higher levels of business activity in September. Residential construction was the strongest performing of these sub-sectors, with the latest rise in output the fastest since November 2003. Commercial construction activity increased at the most marked pace since May 2012, while growth of civil engineering activity eased from August’s recent high.

September data pointed a further rebound in underlying demand across the construction sector, as highlighted by an improvement in new business inflows for the fifth successive month. Anecdotal evidence pointed to greater levels of spending among both public and private sector clients. Increased volumes of new work encouraged construction companies to take on more staff in September, thereby extending the current period of job creation to four months. The latest expansion of construction employment was also the sharpest since December 2007.

Job creation was supported by a greater degree of positive sentiment about the outlook for business activity over the 12 months ahead. More than five times as many respondents expect a rise in output (51%) as those that anticipate a fall (9%). This pointed to the highest level of confidence since April 2010.

Increased construction output and rising levels of client spending led to greater purchasing activity in the sector during September. Higher levels of input buying have now been recorded for four months in a row. This again placed strain on suppliers’ capacity, with delivery times lengthening to the greatest degree since August 1997.

However, average cost burdens across the construction sector rose at the fastest rate since November 2011.

Markit senior economist Tim Moore, author of the report, said: “Construction is no longer the weakest link in the UK economy. The third quarter of 2013 ended with output growth riding high amid greater spending on infrastructure projects and resurgent house-building activity.

“The reversal in fortunes has spanned commercial, residential and public sector construction projects. Moreover, builders are confident that a tide of new tender opportunities will continue to lift the construction sector in the months ahead, supported by improved development funding conditions and better underlying economic conditions.

“September’s survey suggested that constructors are beginning to react with confidence to the more positive landscape for the sector, as job creation and input buying both rose at robust rates over the month.”

David Noble, chief executive at the Chartered Institute of Purchasing & Supply, which sponsors the survey, added: “The construction sector is firing on all cylinders. Growth in UK house-building hit heights not seen for 10 years in September, and was supported by a solid acceleration in business from commercial construction, whilst growth in civil engineering remains well above the long run average, rounding off the best quarter of growth in construction since Q2 2010. Confidence is now at its strongest in almost 3 and a half years building strong momentum going into the final quarter.

“Having been in the doldrums for so long, builders are using this renewal as a platform to invest, with employment seeing the most dramatic upturn in close to 6 years.

“Inevitably, purchasing levels have also increased, but the adverse effect of this is increased pressure on suppliers to meet growing levels of demand, to the extent that their performance deteriorated at the fastest rate for 16 years.

“These pressures, along with increased cost burdens have the potential to act as a brake on the sector, but should not overshadow the overwhelmingly positive picture for UK construction.”

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