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UK construction output “weakest for nine months”

The UK construction sector has seen a slowdown in growth, according to the Markit/CIPS UK Construction PMI® January data.
At 55.0, the Index is down from the 57.8 reported in December, well above the 50.0 no-change value, but the slowest rate of expansion since April 2015.

A number of survey respondents noted that softer new business growth had acted as a brake on output growth and staff hiring at the start of 2016.

Higher levels of output were recorded across all three broad areas of construction activity monitored by the survey, with commercial work remaining the best performing category in January. At the same time, house building activity expanded at the second weakest pace for just over two-and-a-half years. Civil engineering was again the weakest performing area of activity overall, despite rebounding slightly from December’s eight-month low.

That said, a number of construction companies also noted a sustained upturn in infrastructure-related contracts and new residential building work in January. Looking ahead, survey respondents remained highly upbeat overall about their prospects for growth over the next 12 months, with around 46% expecting a rise in business activity and only 6% anticipating a reduction. However, the degree of positive sentiment eased for the third month running and was the lowest since December 2014.

Supply chain pressure persisted in January, as highlighted by a further lengthening of delivery times from vendors. However, lower fuel and energy costs helped to partially offset rising prices for construction materials.

Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI® , said: “UK construction firms struggled for momentum at the start of this year, with heightened economic uncertainty acting as a brake on new orders and contributing to one of the weakest rises in output levels since the summer of 2013. Softer growth of house building activity and a more subdued increase in commercial construction were the main factors behind the slowdown.

“Business confidence appears to have subsided across the construction sector, following the multiyear highs seen in 2015. The latest survey indicated that construction companies are less upbeat about their prospects for growth than at any time since December 2014.

“Job creation was sustained in January, but at the weakest pace for almost two-and-a-half years. Greater caution was also evident in terms of input buying at the start of 2016. Taken together with the slowdown in new order growth, the latest survey suggests that construction companies are braced for a relatively subdued first quarter.”

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said: “Struggling to keep up with the recovery of recent months, the new orders index was the lowest for four months and overall activity growth softened, bringing with it lower job hiring and more caution about the sustainability of the current economic climate hit by adverse global conditions.

“The housing sub-sector continued to disappoint and though still above the no change point, was at its second weakest level of growth since June 2013. “Supply chains were weighed down by the pressures of a shortage of bricks and blocks as delivery times became longer in an attempt to fulfil recent orders from last year. Optimism was still high, however, as business expansion plans continued although at a slightly more muted pace.”

About Fiona Russell-Horne

Fiona Russell-Horne
Group Managing Editor across the BMJ portfolio.

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