UK construction
companies indicated an uneven recovery in business activity at the end of 2017.
A robust rise in
residential building contrasted with falling work on commercial projects and
stagnating civil engineering output.
There were positive
signals for the near-term business outlook, with new order growth reaching a
seven-month high and job creation the strongest since June. However, intense
supply chain pressures continued across the construction sector, while input
cost inflation picked up from November’s 14-month low.
The seasonally
adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI)
posted 52.2 in December, down from 53.1 in November but above the 50.0
no-change threshold for the third month running. As a result, the latest
reading signalled a moderate expansion of overall construction output at the
end of 2017.
Survey respondents
indicated that house building remained a key engine of growth, with residential
work expanding for the sixteenth consecutive month in December. In contrast,
latest data indicated a moderate fall in commercial construction, thereby continuing
the downward trend seen since July. Civil engineering work stabilised during
the latest survey period, which ended a three-month period of decline.
December data pointed
to resilient demand for new construction projects, as highlighted by the
fastest upturn in new order volumes since May. Anecdotal evidence cited an
improved flow of enquires in recent months, alongside a gradual upturn in
clients’ willingness to commit to new work.
The prospect of
greater workloads ahead resulted in stronger rises in employment and purchasing
activity during December. In fact, the latest upturn in input buying was
the steepest for two years, which survey respondents widely linked to increased
business requirements. Robust demand for construction products and materials
contributed to another sharp lengthening of suppliers’ delivery times at the
end of 2017.
Strong cost pressures
persisted across the construction sector, driven by rising prices for a range
of inputs. In particular, survey respondents noted higher prices for blocks,
bricks, insulation and roof tiles, alongside continued rises in the cost of imported
products. Although the rate of input cost inflation picked up since November,
it remained softer than February’s peak.
Despite a rebound in
new order volumes during December, construction firms indicated a subdued
degree of optimism regarding the business outlook for the next 12 months. The
balance of companies expecting a rise in output levels remained among the
weakest recorded since mid-2013, which survey respondents mainly linked to
worries about the wider UK economic outlook.
Tim Moore, Associate
Director at IHS Markit and author of the IHS Markit/CIPS Construction PMI
said: “The UK construction sector achieved a moderate expansion of business
activity at the end of 2017, although the recovery remained uneven and slowed
overall since November. Construction companies indicated that another strong
contribution from house building helped to offset subdued civil engineering
activity and reduced volumes of commercial work.
“Total new orders
picked up at the fastest pace for seven months in December, which provides a
positive signal for construction workloads in the short-term. Resilient demand
and forthcoming project starts also led to greater job creation and the
strongest increase in input buying for two years.
“However, construction
firms indicated that longer-term business confidence is still relatively
subdued, largely reflecting concerns about the domestic economic outlook.
Exactly 37% of the survey panel forecast a rise in construction activity over
the course of 2018, while around 11% anticipate a reduction. As a result, the
balance of UK construction companies expecting growth in the year ahead remains
among the weakest recorded by the survey since mid-2013.”
Duncan Brock, Group
Director at the Chartered Institute of Procurement & Supply, said: “The sector offered little in terms of
comfort at the end of 2017, though the pace of new business picked up to its
strongest level since May, and purchasing activity rose to its fastest rate in
two years, supply chains were under increasing pressure from all sides.
“The housing sector
was the strongest performer again and materials for residential building were
in greater demand fuelling longer delivery times, shortages of key materials
and sharper input cost rises.
“It appears that the
continued fall in commercial activity was testament to Brexit-related
uncertainty on the horizon and the sector’s fear about the direction of the UK
economy as clients still hesitated to spend on bigger projects.
“Business optimism was
subdued at levels not seen since 2013, but the improvement in new order growth
in December contributed to the biggest surge in job creation since June.
Construction firms still anticipated future new work, in spite of the climate of
continued uncertainty and wanted to ensure that skilled talented people were in
place should the New Year offer more success than expected.”
