Housebuilding leads recovery in construction output

October 4, 2016 / Isla MacFarlane
Housebuilding leads recovery in construction output

September data highlighted an upturn in business activity across the UK construction sector for the first time since May, primarily driven by a recovery in residential building.

New orders also rebounded during September, which ended a four-month period of sustained decline. “UK construction companies moved back into expansion mode during September, led by a swift recovery in residential building from the three-and- a-half year low recorded in June,” said Tim Moore, Senior Economist at IHS Markit and author of the Markit/CIPS Construction PMI.

“Resilient housing market conditions and a renewed upturn in civil engineering activity helped to drive an overall improvement in construction output volumes for the first time since the EU referendum,” Moore added. “A number of survey respondents noted that Brexit- related anxiety has receded among clients, although it remained a factor behind the ongoing decline in commercial building work.”

Survey respondents cited improving confidence among clients and a reduced drag on demand from Brexit-related uncertainty. Reflecting this, construction firms indicated a further recovery in their business expectations for the next 12 months, with optimism the strongest since May.

Just under half of the survey panel (45%) forecast a rise in output over the year ahead, while only 9% anticipate a reduction. However, the degree of confidence remained softer than that seen at the start of 2016.

A solid rebound in residential activity was the key factor boosting overall construction output during September. Moreover, the latest increase in housing activity was the strongest recorded since January.

Anecdotal evidence suggested that of improving domestic economic conditions, and an upturn in housing-related demand in particular, had contributed to greater volumes of incoming new work in September. This in turn led to a further moderate rise in employment levels across the construction sector, although sub- contractor usage continued to fall at one of the fastest rates since late-2013.

Meanwhile, construction companies indicated that supply chain pressures eased in September, with the latest deterioration in vendor performance the least marked seen for almost six years.

There were again widespread reports that exchange rate depreciation had pushed up the cost of construction materials during September. “Not only are UK construction companies feeling the impact of subdued investment spending relative to earlier this year, but the weak pound has contributed to a sharp acceleration in cost inflation,” said Moore. “There were again widespread reports that domestic suppliers had acted quickly to pass on higher imported raw material costs, despite softer demand conditions in recent months.”

A number of survey respondents noted that domestic suppliers had sought to pass on higher imported raw material costs. Although easing since August, the rate of input price inflation was close to the highest for two years.

“The residential sector was the winner this month, as consumer confidence made a modest recovery, post the EU referendum,” said David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply. “Overall, the fastest rise in new orders for construction projects since April ended a four- month decline, and purchasing activity was at its highest since March. But, though there were modest rises in staffing levels, these were at one of the weakest rates in the last three years.”

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