Residential and commercial work dips

UK construction companies recorded a sustained expansion of overall business activity in February, with civil engineering replacing house building as the main growth driver, according to IHS Markit.

Residential activity increased at the slowest pace for six months, while commercial building declined for the first time since October 2016. The latest survey revealed a further solid expansion of employment numbers, despite a slowdown in new business growth to its weakest for four months. Meanwhile, intense cost inflation persisted in February, which was overwhelmingly linked to higher prices for imported materials.

At 52.5 in February, up slightly from 52.2 in January, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) registered above the neutral 50.0 threshold for the sixth consecutive month. However, the rate of output growth remained weaker than its post- referendum peak (54.2 in December 2016) and subdued in comparison to the trends seen over the past three-and-a-half years.

Survey respondents noted that the resilient economic backdrop and a stabilisation in client confidence since the EU referendum continued to help drive construction growth in February.

However, there were also reports that demand growth had softened so far in 2017. Reflecting this, incoming new work increased only marginally and at the slowest pace since last October. Some construction companies noted that sharply rising input costs had an adverse impact on decision-making and contributed to delays in contract completions.

February data indicated that construction companies remain upbeat about their growth prospects for the next 12 months, with almost half (48%) forecasting a rise in business activity and only 13% expecting a decline. The degree of positive sentiment was stronger than seen on average in the second half of 2016, but weaker than January’s 13-month peak. Strong demand for house building projects was cited as a key factor likely to boost construction output.

Robust business confidence contributed to sustained staff hiring across the construction sector in February. Sub-contractor demand also picked up during the latest survey period, which contributed the sharpest drop in sub-contractor availability since January 2016.

Tim Moore, senior economist at IHS Markit, said: “February’s survey data highlights that the UK construction sector has rebounded from its post-referendum soft patch but remains on a relatively slow growth trajectory. Weaker momentum in the house building sector was a key factor weighing on construction growth, alongside a renewed fall in work commercial projects.”