Construction News

Thu March 04 2021

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Industry expansion starts to ease

2 May 14 Construction’s growth rate slowed in April but house-building activity is now close to a 10-year high.

These are among the findings of the latest monthly survey of construction industry buyers by Market Economics for the Chartered Institute of Purchasing & Supply (CIPS).

UK construction companies continued to record strong output rises during April, with all three broad categories of activity registering robust growth. Higher levels of construction output have now been recorded for 12 consecutive months.

The overall rate of expansion eased in April and was the softest for six months. The seasonally adjusted construction Purchasing Managers’ Index (PMI) dipped from 62.5 to 60.8 in April. However, this puts it way above the 50.0 no-change threshold and clear of the long-run survey average of 54.3.

Residential construction was the best performing broad area of activity, and the rate of expansion in April remained one of the fastest seen over the past 10 years. Moreover, the current 15-month period of continuous house-building growth is the longest since 2006/07. Commercial activity increased sharply in April, but growth of civil engineering activity eased and was the slowest since September 2013. Some firms noted a moderation in the boost to civil engineering activity from work related to flood relief.

The latest survey pointed to a steep and accelerated rise in new business received by UK construction companies, with the pace of expansion the fastest since January. Survey respondents noted a range of positive influences on new business volumes, particularly increased numbers of new housing starts, higher levels of public sector infrastructure spending and improving underlying economic conditions.

April data pointed to a steep rise in construction employment, which extended the current period of job creation to 11 months. Increased payroll numbers were widely attributed to greater output requirements and confidence about the outlook for business activity. Confidence for the business outlook was only slightly lower than the seven-year high posted a month ago. More than half (56%) of construction companies anticipate a further rise in output in the next 12 months while just 5% predict a fall.

Supply chain pressures persisted in April, with the latest deterioration in vendor performance one of the sharpest seen over the past 16 years. There was also another steep drop in the availability of subcontractors in April.

Strong demand for inputs was highlighted by a further increase in purchasing activity among construction firms. Higher levels of input buying have been recorded in each month since June 2013. Meanwhile, input cost inflation eased slightly to a three-month low in April, the survey found. Prices of such raw materials as bricks and timber continue to rise, however.

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Markit senior economist Tim Moore said: “Construction growth has started to moderate from the rapid pace seen over the winter, but strong rises in new work and payroll numbers provide ample optimism that output will expand strongly over the course of 2014.

“Better economic conditions, a surge in house-building, improved access to finance and greater investment spending are all important tailwinds for UK construction growth this year. Moreover, the latest survey is another indication that current UK construction trends are healthier than the relatively meagre official growth estimates so far this year.

“April’s survey indicated that residential building was the fastest growing area of UK construction activity, with the latest expansion correlating with at least 45,000 new housing starts per quarter. While there looks to have been a further steep upturn in new house building starts in April, the trend remains well short of estimated increases in underlying demand each year.

“Set against the tightening supply chain backdrop, a difficult challenge lies ahead for the housebuilding sector to make sure it doesn’t hit a ‘brick ceiling’.”

CIPS chief executive David Noble added: “While the rate of growth slowed slightly in April, the construction sector is still experiencing a remarkably strong and consistent period of expansion. Positive news abounds as housing activity reached a near ten-year high and the sector as a whole benefitted from the sharpest rise in new business since January this year. This, alongside improving economic conditions, continued to drive strong job creation, giving further cause for optimism about the future.

“House building was again the leading light in April, with growth now running for the longest continuous period since 2006/2007. This was further supported by a solid expansion in commercial activity; meanwhile civil engineering showed some signs of moderation, as companies looked for new work to replace flood relief activity.

“Reflecting the fast pace of growth filtering through the supply chain, vendor performance in April continued to deteriorate, typified by shortages of capacity, low stocks and worsening lead times. Beyond this, the easing of cost inflation this month was acknowledged to have brought some relief to the industry.”

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