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Positive end for 2017

The latest IHS Markit/CIPS UK Construction PMI® figures have been released for December, showing a positive end to the year for the industry.

Although construction output growth eased slightly, there were positive signs from housing activity and new order rises.

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.

The figures show that the industry has been left on a steadier plane for 2018, and while recovery is uneven, a robust housing market is likely to bolster the sector.

New order growth has reached a seven month high, leading to the strongest job creation levels since June 2017. In contrast, work is falling on commercial projects and civil engineering output has not moved for the last quarter.

While a sharp rate of input price inflation continued in December, and intense supply chain pressures remain, across the industry.

Speaking to respondents, researchers found that house building remains a key engine of growth, with government focus on the sector helping to drive residential work into its 16th consecutive month of growth. Looking the other way, commercial work has seen falling figures since July, while civil engineering work has stabilised, ending a three-month period of decline.

Respondents also pointed to a resilient demand in new construction projects, with new orders growing fastest since May 2017. Clients are more willing to commit to projects, according to purchase managers, which in turn is leading to a growth in employment, as businesses welcome stronger workloads.

The latest upturn in input buying was the steepest for two years, which survey respondents widely linked to increased business requirements, however this demand for construction products and materials has contributed to another sharp lengthening of suppliers’ delivery times at the end of 2017.

Prices for products are also growing, with respondents noting rises blocks, bricks, insulation and roof tiles, alongside continued rises in the cost of imported products.

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.”

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