UK housebuilding proving ‘key engine of growth’

Output in the UK’s construction sector increased at its fastest rate for ten months during December, according to a new report.

UK house building
The Markit/CIPS purchasing managers’ index (PMI) for UK construction, published a day after the PMI for manufacturing showed the fastest rate of growth in two-and-a-half years, rose to 54.2 in December – up from 52.8 in November – even though the sector was facing “intense cost pressures” as a result of the fall in the value of the pound since the Brexit vote.

Unforeseen improvement

Analysts had not been predicting such an improvement, which was driven by a rise in orders unequalled in almost a year and a marked improvement in the business environment, despite the fact that raw-material cost inflation was at its highest since 2011.Tim Moore, senior economist at Markit, said the PMI showed the construction industry had produced a “solid rebound” in the final quarter of last year. He added, “All three main areas of construction activity have started to recover from last summer’s soft patch, but in each case growth remains much weaker than the cyclical peaks seen in 2014.“Housebuilding remains a key engine of growth for the construction sector, with the latest upturn the fastest for almost one year.“Meanwhile, commercial activity was the weakest-performing category in December, reflecting an ongoing drag from subdued investment spending and heightened economic uncertainty.”House construction grew at its fastest pace since January, boosting employment levels, with recruitment last month growing at its fastest rate since the spring. With business confidence growing in the sector, almost half of the companies surveyed said they expected business activity to increase over 2017.

Optimism over UK economy

Howard Archer, chief UK and European economist at IHS Global Insight, said the PMI boosted expectations of a healthy performance by the UK economy in Q4. “The improved December construction purchasing managers’ survey follows on from the manufacturing survey showing activity picking up to a 30-month high in December,” he said.“This buoys hopes that the UK economy continued to hold up pretty well in the fourth quarter of 2016 after resilient expansion of 0.6 per cent quarter on quarter in the third quarter following June's Brexit vote. A healthy December purchasing managers’ survey for the dominant services sector would be particularly reassuring.”Mike Chappell, managing director of infrastructure at Lloyds Bank, commented, “As this data reflects, the construction firms we speak to are still relatively upbeat. Yet there is some uncertainty as we begin the first quarter of the year given the likelihood of Article 50 being triggered.“To try and create stability, many contractors are focusing on managing risks, for example through joint ventures. These suit both construction businesses and clients by sharing risk and minimising the impact of one firm being unable to fulfil a contract.“In terms of pipelines, the current political focus on infrastructure is welcomed by contractors but while they are optimistic about the potential of mega-projects like Heathrow, Hinkley Point and HS2, they are hard-wired not to pin their hopes on any schemes until shovels hit the ground.”In the Winter 2016/17 issue of Relocate magazine, David Sapsted looks at some of the key international locations bidding for a piece of the post-Brexit action, and canvasses the views of business leaders and politicians.

 

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