Construction finished 2015 in positive fashion

UK construction companies ended 2015 with a robust and accelerated expansion of overall business activity according to the latest Markit/CIPS UK Construction Purchasing Managers’ Index survey. The results indicate a rebound from the slowdown recorded in November.

Commercial construction remained the best performing sub-category of activity in December, with the latest upturn the fastest since October 2014. Survey respondents noted that improving UK economic conditions continued to boost demand for commercial projects. Housing activity also increased at a robust rate that was much stronger than the 29-month low seen during November. Anecdotal evidence cited an improving flow of development opportunities and new invitations to tender.

Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: “UK construction companies finished 2015 in a positive fashion, as overall output growth recovered from November’s seven-month low. Commercial building was the main engine of growth, with this area of activity expanding at the strongest pace since autumn 2014. There was also a rebound in house building activity in December, but momentum was still much softer than the post-crisis highs achieved during 2014.

David Noble, group chief executive at the Chartered Institute of Procurement & Supply, said: “With both new orders and general business activity on the rise, this month saw a considerable spike in purchasing activity and the second fastest increase since January 2015, amidst an environment where suppliers struggled more as lead times lengthened.

December data signalled a robust and accelerated increase in new business volumes, thereby mirroring the trend recorded for construction output at the end of 2015. The latest rise in new work was the second-fastest since July, which survey respondents linked to favourable demand conditions and an improved willingness among clients to commit to new projects.

The upturn encouraged increased job creation among construction companies during December, with the rate of employment growth rebounding from the 26- month low recorded in November.

Subcontractor usage meanwhile picked up at the fastest pace since August 2014. The latest survey highlighted the second-fastest increase in purchasing activity since January 2015 and subcontractor rate increases were at the slowest pace since August 2013.

Strong demand for inputs, alongside an continuing squeeze on supplier capacity, resulted in the sharpest drop in vendor performance since June. At the same time, input cost inflation eased during December, reaching its lowest for eight months. A number of construction firms reported lower transportation and steel costs.

Just over half of the survey panel (51%) anticipate a rise in business activity over the course of 2016, while only 7% forecast a reduction. Although this indicated the weakest degree of positive sentiment since February, the index remained well above its post-crisis average. Survey respondents noted that greater client budgets, improving economic conditions and a strong pipeline of new projects had underpinned business confidence in December.

Richard Threlfall, KPMG’s UK Head, Infrastructure, Building and Construction commented on the latest Markit/CIPS UK Construction Purchasing Managers’ Index. He said: “With commercial building and housing activity leading the recovery, the only sub-sector in marginal decline is in civil engineering activity, but I am confident that will pick up quickly again given the huge pipeline of infrastructure work committed by the Government.

“Although cost inflation in the sector moderated in December, the rate of employment increased and we can expect to see further pricing pressure in the first quarter of 2016 as construction demand picks up further. However through the course of 2016 I believe recruitment into the industry will reduce the skills gap and supply and demand in the industry will start to stabilise, bringing more predictable order books and the potential for better margins for Tier 1s.”