Construction hits nine-month high in December but costs jump

Activity in Britain's construction sector expanded at the fastest rate in nine months in December, boosted by more house building, but sterling's weakness drove the biggest rise in costs in over five years.

The Markit/CIPS purchasing managers' index (PMI) rose to 54.2 in December, its strongest since March and well ahead of expectations in a Reuters poll for it to hold steady at November's reading of 52.8.

But the figures also highlight the challenge Britain will face this year from sterling's plunge after the June vote to leave the European Union, which has pushed up business and household costs.

Markit said building costs rose last month at a rate not seen since April 2011, and that companies reported shortages of materials, possibly because of extra demand as they stocked up to beat further price increases.

"UK construction companies noted that the weaker sterling exchange rate had resulted in higher costs for a wide range of imported materials," survey author Tim Moore wrote.

Britain looks to have been one of the strongest-performing advanced economies last year, but most economists predict a slowdown in growth to 1.1 percent this year from double that in 2016 as inflation climbs.

House building accelerated in December, growing at the fastest rate since January, and may get extra momentum if government plans announced on Monday to build 200,000 new rural homes overcome local planning restrictions.

Civil engineering staged its biggest pick-up in growth in nearly two years, Markit said, but demand for commercial projects such as factories and shops remained lacklustre.

This reflected "an ongoing drag from subdued investment spending and heightened economic uncertainty," Moore said.