3 February 2015

Construction output growth picks up

According to the latest figures from the Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) output and new business growth in construction has rebounded from the lows seen in December.

Up at 59.1 up from 57.6 in December, the index points to an accelerated expansion of overall business activity at the start of 2015.

All three main areas of construction activity have picked up since December. However, in each case the rate of expansion was weaker than the peaks seen in 2014. Residential building was the best performing sub-category in January, with the latest survey marking two years of continuous expansion. The new data also indicated a robust rise in commercial construction and a rebound in civil engineering activity following the decline seen in December.

Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: “UK construction companies have found their feet again after a protracted slowdown in output growth at the end of 2014. Stronger trends were recorded across housing, commercial and civil engineering, although each category of activity still experienced much slower growth than the high-water marks achieved last year.

“In short, the peak speed of the construction recovery seems to be over, but reports of its death have been greatly exaggerated.

Chris Temple, engineering and construction leader at PwC, said: 'As expected, the brief slowdown in construction growth towards the end of last year has not continued into a slump but was merely the construction sector catching its breath after the high growth seen in 2014. The positive outlook reported in the survey also chimes with what we are seeing with our clients, most of whom are predicting solid growth in excess of 3% for the sector in 2015.

'The rebound in growth will give construction firms confidence to continue recruiting workers and bring job creation back onto the agenda over the coming year.

He continued: “The sharp fall in oil prices has had the inevitable effect of decreasing input prices. However, as low oil prices continue, construction firms will come under increasing pressure from customers to pass the savings onto them, particularly as current sentiment suggests that the low prices may be sustained for some time.

'The conundrum for construction firms will be whether they assume that low oil prices will continue for a sustained period, and set their prices accordingly, or build in the possibility of an oil price rise, which could risk their customers moving to cheaper competitors. It will be a tricky balancing act but sitting on the fence may not be an option,' Mr Temple added.


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