Construction output growth rebounds at the start of 2015
Growth of business activity has picked up from December’s 17-month low and new business levels are rising at an accelerated pace in January, however, job creation eases to its weakest for 13 months according to the latest Markit/CIPS UK Construction Purchasing Managers’ Index (PMI).
January data pointed to a positive start to the year for the UK construction sector, with output and new business growth rebounding from the lows seen in December. At 59.1 in January, up from 57.6 in December, the seasonally adjusted index pointed to a robust and accelerated expansion of overall business activity at the start of 2015.
All three broad areas of construction activity picked up since December, but in each case the rate of expansion was weaker than the peaks seen in 2014. Residential building was the best performing sub-category in January, with the latest survey marking two years of continuous expansion. Meanwhile, latest data also indicated a robust rise in commercial construction and a rebound in civil engineering activity following the decline recordedin December.
Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: “UK construction companies have found their feet again after a protracted slowdown in output growth at the end of 2014. Stronger trends were recorded across housing, commercial and civil engineering, although each category of activity still experienced much slower growth than the high-water marks achieved last year.
“Skill shortages persisted at the start of the year, with construction companies indicating that subcontractor charges increased at a near survey record pace.Strong demand for construction materials resulted in upward pressure on costs and lengthening delivery times from suppliers in January. That said, the latest survey highlighted that lower fuel and energy prices helped drive down overall cost inflation to its lowest for just under two years.”
David Noble, Group chief executive at the Chartered Institute of Procurement & Supply, said: “The construction sector has had a perky start with good activity across all sectors. New orders were up, but staffing levels have yet to catch-up showing at their lowest level of growth for 13 months, which may slow down activity as companies struggle to keep up with new demand. With supply chains under pressure, supply shortages, longer delivery times and a sharp fall in the performance of suppliers, there may still be challenges ahead.
“Uncertainty about the continued recovery of the wider economy and the possible changes brought on by a looming General Election may keep the sector from performing at the high levels seen this time last year.”
In line with the trend for business activity, volumes of new work increased at a robust and accelerated pace in January. The latest upturn in new work was the fastest for three months, albeit still well below the average for 2014 as a whole. Meanwhile, the rate of job creation eased for the second month running to its weakest since December 2013. Some firms suggested that softer new business gains in recent months had contributed to a slowdown in
employment growth.
Supply chain pressures persisted in January, as highlighted by a sharp deterioration in vendor performance. Anecdotal evidence suggested that strong demand for construction materials and shortages of spare capacity among suppliers had contributed to longer delivery times at the start of 2015.
The availability of subcontractors decreased sharply during January, while the latest rise in subcontractor charges was close to the survey-record high recorded in November 2014. Overall input cost inflation nonetheless eased to its weakest since April 2013, helped by falling energy and fuel prices.
Looking ahead, almost half of the survey panel forecast a rise in business activity over the next 12 months, while less than one-in-ten anticipate a reduction. However, the degree of business optimism was the second-lowest since October 2013, with some firms citing heightened uncertainty about the overall economic outlook.
