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UK construction shows its strength in March

The UK construction sector saw business activity and incoming new work continuing to rise at robust rates in march, according to the latest Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®.
Having said that, the latest upturn in overall output volumes was the least marked for three months, in part reflecting softer civil engineering activity growth, while job creation remained below the peaks seen in 2014.

Looking ahead, construction firms reported a strong degree of positive sentiment towards the outlook for business activity over the next 12 months, with the latest reading the highest since February 2006.

The headline seasonally adjusted Index figure showed 57.8 in March, down from 60.1 in February and the lowest for three months, but still well above the 50.0 no-change value.

As a result, the latest reading pointed to a strong rate of overall construction output growth, albeit one that was below the average for 2014 as a whole (61.8).

All three broad areas of construction activity saw a loss of momentum since February. Housing remained the best performing sub-sector, followed by commercial construction. Meanwhile, civil engineering output growth eased markedly since the previous month and was the weakest performing category of activity.

New business volumes continued to rise at a strong pace in March, although the rate of expansion eased from February’s four-month high. Companies that reported an upturn in new orders generally cited improving economic conditions and greater underlying client demand.

However, some construction firms noted that uncertainty related to the forthcoming general election had encouraged clients to delay spending decisions.

Strong cost pressures persisted across the UK construction sector in March. Anecdotal evidence widely suggested that stock shortages at suppliers and robust demand for construction materials had led to increased input prices.

Moreover, delivery times from vendors worsened during the latest survey period, with firms reporting extended lead times for a range of inputs (especially bricks). Meanwhile, improving order books and sustained rises in new invitations to tender underpinned a marked upturn in business confidence. More than half of the survey panel (57%) forecast a rise in output over the year ahead, while only 3% expect a fall, which equates to the strongest degree of construction sector optimism for just over nine years.

Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI® , said: “UK construction output growth has settled in at a strong pace so far in 2015, although the recovery has lost some of its swagger since last year. “All three main categories of construction activity saw a growth slowdown in March, in part reflecting softer new business gains as some clients delayed spending decisions ahead of the general election. “However, UK construction companies are highly upbeat about their prospects for growth over the course of the next 12 months, helped by improving economic fundamentals, strong order books and a healthy pool of new invitations to tender.”

Commenting on the report, David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said: “The construction sector’s strong recovery took on a gentler, quieter pace, with the housing sector continuing to lead the way ahead – but only just, and with the commercial sector a close second.

“The main takeaway from this month must be the highest levels of confidence seen in the construction sector for almost a decade. Though there may be some low-level obstacles still to come, the sector gets the green light as there is evidently belief that the future for the construction sector is a sustainable one.”

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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