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Construction output growth in the UK eased slightly in December, the latest IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) found, but new orders rose at the fastest pace since May.

According to the PMI, housing remained the best performing area of activity by far, while the sharp rate of input price inflation continued in December.

The research showed that UK construction companies were indicating 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.

The producers of the survey said that 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 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 was said to have signalled a moderate expansion of overall construction output at the end of 2017.

Survey respondents indicated that house building remained a key engine of growth, with residential work expanding for the 16th consecutive month in December. In contrast, the latest data indicated a moderate fall in commercial construction, continuing the downward trend seen since July. Civil engineering work stabilised during the latest survey period, which ended a three-month period of decline.

Resilient

December data pointed to resilient demand for new construction projects, as highlighted by the fastest upturn in new order volumes since May. The survey organisers pointed to anecdotal evidence which cited an improved flow of enquiries 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, it found, adding that the latest upturn in input buying was the steepest for two years. Survey respondents widely linked this 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, the PMI found.

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.

The survey found that 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. The balance of companies expecting a rise in output levels remained among the weakest recorded since mid-2013, which survey respondents mainly linked to worries about the wider UK economic outlook.

Uneven recovery

Tim Moore, associate director at IHS Markit and author of the 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.”

He added, “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.

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“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 (CIPS), 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.”

He said that it appeared that the continued fall in commercial activity was an example of the uncertainty as a result of Brexit (the UK’s decision to leave the European Union), and the sector’s fear about the direction of the UK economy as clients were still hesitating about spending on bigger projects.

“Business optimism was subdued at levels not seen since 2013,” he said, “but the improvement in new order growth in December contributed to the biggest surge in job creation since June.”

He said that construction firms still expected new work in the future, “in spite of the climate of continued uncertainty” and that they wanted to ensure that skilled talented people were in place should the New Year offer more success than expected.

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