Housebuilding remains a key engine of growth, with residential construction work expanding for the sixteenth consecutive month in December.
“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,” said Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply.
UK construction companies indicated an uneven recovery in business activity at the end of 2017. A robust rise in residential building contrasted with falling work on commercial projects and stagnating civil engineering output.
There were positive signals for the near-term business outlook, with new order growth reaching a seven-month high and job creation the strongest since June. However, intense supply chain pressures continued across the construction sector, while input cost inflation picked up from November’s 14-month low.
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.
Tim Moore, Associate Director at IHS Markit and author of the IHS Markit/CIPS Construction PMI said, “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.”
However, December data pointed to resilient demand for new construction projects, as highlighted by the fastest upturn in new order volumes since May. Anecdotal evidence cited an improved flow of enquires in recent months, alongside a gradual upturn in clients’ willingness to commit to new work.
The prospect of greater workloads ahead resulted in stronger rises in employment and purchasing activity during December. In fact, the latest upturn in input buying was the steepest for two years, which survey respondents widely linked to increased business requirements. Robust demand for construction products and materials contributed to another sharp lengthening of suppliers’ delivery times at the end of 2017.
Strong cost pressures persisted across the construction sector, driven by rising prices for a range of inputs. In particular, survey respondents noted higher prices for blocks, bricks, insulation and roof tiles, alongside continued rises in the cost of imported products.
Although the rate of input cost inflation picked up since November, it remained softer than February’s peak. Despite a rebound in new order volumes during December, construction firms indicated a subdued degree of optimism regarding the business outlook for the next 12 months.
Brock 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.
“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.”