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Incoming new work boosts construction activity

Construction activity sees sharpest rise in four months

The fastest increase in new orders since October 2014 has seen UK construction activity expand at its sharpest level for companies across the country.

Higher levels of activity were also seen in all three sub-categories of construction work, with residential activity seeing the steepest rate of growth. Input prices suffered a steep and accelerated rise due to the strong demand for construction materials and ongoing shortages of stock, and rates charged by subcontractors increased at the most marked pace since April 1997, when the survey began.

The figures have been reported through the Markit/CIPS UK Construction Purchasing Managers Index® (PMI®). February’s construction activity registered above the neutral 50.0 threshold for the 22nd successive month, coming in at 60.1, up from 59.1 in January.

The survey respondents generally attributed increasing output levels to strong workloads, and clients willingness to spend more. The rate of new business accelerated from the 18 month low reported in December 2014 and was the sharpest since October. New business gains were attributed to improving economic conditions and positive sentiment towards the business outlook. However, it has been suggested that uncertainty in the outcome of the General Election has meant clients have delayed spending decisions.

The steep increase in construction activity is said to have improved the job creation rate across the construction sector also, with the rate of employment growth moderating to its least marked since December 2013. Subcontractor usage increased at an accelerated rate, leading to another steep reduction in the availability of sub-contractors and strong demand for subcontractors in turn helped the average rates charged.

There were worsening supply chain pressures across the UK construction sector, as highlighted by vendor delivery times lengthening to the greatest degree since October 2014. Capacity shortages among suppliers and strong demand for construction materials also contributed to a marked upturn in input price inflation since January.

The outlook for the next 12 months looks good with 51% of the survey panel expecting an increase in construction activity, and less than one in ten forecasting a reduction. This positive sentiment has been linked to robust pipelines of new work and favourable expectation for client spending across the year.

Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI®, said: “The latest survey highlights renewed vitality within the UK construction sector, as output growth picked up further from the soft patch seen at the end of 2014. Housing, commercial and civil engineering activity all expanded at the quickest rates since last October, helped by sharp rises in new business volumes and an improving economic backdrop.

“Stronger short term growth momentum in February was matched by positive sentiment towards the year-ahead business outlook. However, some construction companies noted that the uncertain General Election outcome could prove a temporary bump in the road for new work, as some clients had sought to delay spending decisions.

“Supply chain pressures have been prevalent across the UK construction sector throughout the post-crisis recovery, which continued to drive up costs and lengthen delivery times for construction materials in February.

“Tighter labour market conditions also helped push up operating costs, as highlighted by the fastest rise in sub-contractor charges since the survey began almost 18 years ago.”

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, added: “The construction sector is awash with positive sentiment, rejecting wholeheartedly the downbeat end to last year, with the steepest rise in output activity for four months. The good fortune comes in threes – as respondents report a rise in staffing levels, higher levels of new orders and rising rates for sub-contractors.

“Clients are ready to spend, resulting in rising employment levels, but tempered by continuing skills shortages now seen for a number of months. Subcontractors have been the winners; their rising rates evidence of continued demand for their capacity and the strongest since records began.

“As the sector revives a little more after the devastating effects of the recession, supply chains are experiencing increased pressure and vendors are struggling to keep pace resulting in longer delivery times. Generally worldwide, commodity prices have been falling, but the sector is experiencing strong demand for quality materials and so supply continues to be challenging.

“One small dark spot on the horizon concerns outcomes of the General Election, with a ‘wait and see’ approach from customers such as the public sector. Though there may still be some obstacles ahead, the construction sector is ready to continue to bulldoze a positive path ahead.”

Matthew Still, building consultancy director at property consultancy GL Hearn, commented on the figures: “There are a number of indicators to suggest continuing growth for the commercial and residential property sectors. The current combination of relatively strong economic growth, favourable bank lending conditions, government infrastructure investment and low interest rates are all factors that have historically resulted in strong construction growth, and are likely to so in this cycle.

“Both Labour and the Conservatives have indicated that they will increase the provision of new build housing following May’s election. This sector is driving much of the industry’s growth and 200,000 homes for first time buyers delivered over the next five years could turn construction into an even bigger engine for the UK economy.”