UK and Eurozone growth

09 November 2016

UK construction is growing despite the pessimism that has followed the Brexit vote for the UK to leave the European Union, and at the same time, the Eurozone as a whole is registering economic growth, according to recent surveys.

The UK’s Construction Product Association’s latest Construction Trade Survey shows that the country’s construction industry grew for a 14th consecutive quarter in the third quarter of 2016.

And the Markit Flash Eurozone Purchasing Managers Index, from HIS Markit, found that the pace of economic growth in the Eurozone rose to the highest seen so far this year.

The Construction Product Association (CPA) said that firms across all areas of UK construction reported an increase in activity, including building contractors, SMEs (small and medium-sized enterprises), specialist contractors, civil engineers and product manufacturers.

It said that indicators of future growth had weakened, however, and activity might be “severely hindered” by inflationary pressures caused by rising wages and imported raw materials costs.

Rebecca Larkin, senior economist at the CPA, said, “Following the EU referendum, the entire construction supply chain reported favourable conditions and growth in activity in the third quarter.

“Forward-looking expectations for the fourth quarter and the year ahead were more pessimistic, with the majority of orders and enquiries balances the lowest in two years, or driven by a single sector – private housing.”

She said, “A further factor that stood out as a downside risk to activity in the near-term is the sharp rise in the cost of imported raw materials due to the recent depreciation in Sterling, which is providing a dual hit to construction costs alongside existing wage inflation pressures.”

Marie-Claude Hemming, head of external affairs at CECA, which represents UK civil engineering contractors, said, “It is disappointing that our members continue to report weak growth in their workloads. The infrastructure sector is a vital driver of growth in the UK economy.”

She said that while recent government decisions to commit to large infrastructure projects at Heathrow Airport and the Hinkley Point nuclear power station were welcome, it was clear that the last quarter had seen a lull in activity.

The survey found that 33% of main building contractors, on balance, reported that construction output rose in the third quarter of 2016 compared with a year ago. A balance of 7% of specialist contractors reported a rise in output during the third quarter.

It reported that main contractors reported an increase in orders in private housing but reported a decrease in all other sectors.

The Markit Flash Eurozone PMI said the pace of economic growth in the Eurozone had risen to the highest seen so far this year in October, led by a growth upturn in Germany.

The Markit Eurozone PMI rose from 52.6 in September to 53.7 in October, signalling the fastest monthly increase in business activity since December of last year. New order growth was said to be the highest since January, prompting firms to take on extra staff. Employment showed the biggest gain for three months.

The Eurozone PMI is based on original survey data collected from a representative panel of around 5,000 companies based in the Eurozone manufacturing and service sectors.

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