Construction sector loses momentum in January

There was a slowdown in construction growth in January with the weakest activity in the sector since September 2016. That’s according to the  latest Markit/CIPS UK Construction PMI (Purchasing Managers Index), which registered 52.2 in January, down from 54.2 in December.

However, survey respondents also signalled that confidence regarding the year-ahead outlook as at its strongest since December 2015, largely reflecting new project starts and a resilient economic backdrop.

Exchange rate depreciation against the euro and the US dollar resulted in the strongest rate of input cost inflation since August 2008 and all three sub-sectors (housing, commercial and civil engineering) recorded softer rates of output growth in January.

Although housebuilding remained the best performing category, the latest rise in new work was the least marked since October 2016. The latest increase in employment numbers was the fastest for eight months, while sub-contractor usage rose at the steepest pace since December 2015.

Stronger job creation also reflected a sustained improvement in business confidence among construction companies in January. More than half of the survey panel (51%) forecast a rise in business activity over the next 12 months, while only 7% anticipate a reduction. The index measuring construction firms’ year-ahead expectations has now picked up in five of the past six months.

Tim Moore, Senior Economist at IHS Markit and author of the Markit/CIPS Construction PMI® , said: “UK construction firms experienced a subdued start to 2017, with all the key categories of activity losing momentum. While housebuilding retained its position as the fastest growing part of the construction sector, the latest upturn was the weakest since the postreferendum rebound emerged in September 2016.

“The weak pound continued to have an inflationary impact on the UK construction sector in January. Purchasing costs increased at the strongest rate for almost eight-and-a-half years, as suppliers sought to pass on higher prices for commodities and imported construction materials.”

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said: “Despite the biggest rise in input costs since August 2008, the sector was in buoyant mood at the start of the year, with highest level of confidence since December 2015.

 “In the short term at least, the outlook is positive, as long as economic conditions remain supportive and firms are able to control their rising costs.”