Housebuilding underpins modest recovery in construction output

May 4, 2018 / Isla MacFarlane
Housebuilding underpins modest recovery in construction output

April data indicated a moderate recovery in construction output following the weather-related disruptions seen during March. Housebuilding was the main category of activity to experience robust growth in April.

However, there were signs that underlying demand across the construction sector remained subdued, with total new work rising only marginally in April. The increase in new business was the first recorded by the survey so far in 2018. At 52.5 in April, the seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index picked up sharply from the 20-month low seen in March (47.0).

The latest reading was the highest since November 2017 and signalled a moderate expansion of overall construction output. Residential work was by far the best performing category of construction activity in April, with the rate of growth reaching its strongest since May 2017.

Survey respondents widely commented on the resumption of housebuilding activity following snow disruptions in March. Tim Moore, Associate Director at IHS Markit and author of the IHS Markit/CIPS Construction PMI, said, “A rebound in construction activity was pretty well inevitable after snowfall resulted in severe disruptions on site during March. House building led the way, with growth in April among the strongest seen over the past two-and-a-half years.”

Anecdotal evidence cited heightened economic uncertainty and subdued confidence among clients in April. In some cases, construction firms noted that a knock-on impact from unusually bad weather conditions had contributed to delays with sales completions during the latest survey period.

Despite relatively weak new business growth, employment numbers increased for the twenty-first month running in April. Survey respondents noted that new project starts and an expected increase in workloads had underpinned job creation at their business units. Moreover, latest survey data indicated that construction firms are relatively upbeat about the 12-month business outlook, with the degree of confidence the strongest recorded since May 2017.

Meanwhile, supply chain pressures remained marked in April, with low stocks and shortages of transport capacity contributing to another sharp lengthening of delivery times for construction materials. On a more positive note, input cost inflation was unchanged from the 20-month low seen in March.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said, “The effects of the previous month’s bad weather were echoed in April as supply chains stayed under the cosh again. Besieged by raw material stock shortages and capacity difficulties, suppliers tried to catch up on their delivery commitments with limited success. Transportation times were still lengthy for construction materials for projects already in the pipeline.”

Reports from survey respondents suggested that higher fuel costs and increased prices for steel-related inputs were key factors pushing up operating expenses in April.

Moore concluded, “While temporary factors make it difficult to gauge underlying momentum, the recovery from March’s low point is somewhat underwhelming and provides an indication that the construction sector has been treading water at the very best in recent months.

“A consistent theme so far this year has been fragile demand conditions and subdued volumes of incoming new work. Survey respondents noted that heightened economic uncertainty continued to hold back construction growth in April, with risk aversion among clients leading to delays with spending decisions on new projects.”

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