Business confidence at highest level for more than nine years, despite growth slowdown in March

Markit/CIPS March data pointed to another strong month overall for the UK   construction sector, with business activity and incoming new work continuing to rise at robust rates. That said, the latest upturn in overall output volumes was the least marked for  three  months,  in  part  reflecting softer civil engineering  activity  growth,  while  job  creation  remained  below  the  peaks seen in 2014.

Looking ahead, construction firms reported a strong degree of positive sentiment towards the outlook for business activity over the next 12 months, with the latest reading the highest since February 2006.

The headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) posted 57.8 in March, down from 60.1 in February and the lowest for three months, but still well above the 50.0 no-change value. As a result, the latest reading pointed to a strong rate of overall construction output growth, albeit one that was below the average for 2014 as a whole (61.8). All three broad areas of construction activity saw a loss of momentum since February. Housing remained the best performing sub-sector, followed by commercial construction. Meanwhile, civil engineering output growth eased markedly since the previous month and was the weakest performing category of activity.

New business volumes continued to rise at a strong pace in March, although the rate of expansion eased from February’s four-month high. Companies that reported an upturn in new orders generally cited improving economic conditions and greater underlying client demand. However, some construction firms noted that uncertainty related to the forthcoming general election had encouraged clients to delay spending decisions. The latest survey pointed to an element of caution among construction companies in terms of additional job hiring, with overall employment numbers rising at the least marked pace since December 2013. Although the weakest for over a year, the latest expansion of staffing levels was still much faster than the long-run survey average. Meanwhile, sub-contractor availability continued to fall sharply, which in turn contributed to the steepest increase in sub-contractor charges since the survey began in April 1997.

Strong cost pressures persisted across the UK construction sector in March. Anecdotal  evidence widely suggested that stock shortages at suppliers and robust demand for construction materials had led to increased input prices. Moreover, delivery times from vendors worsened during the latest survey period, with firms reporting extended lead times for a range of inputs (especially bricks). Meanwhile, improving order books and sustained rises in new invitations to tender underpinned a marked upturn in business confidence. More than half of the survey panel (57%) forecast a rise in output over the year ahead, while only 3% expect a fall, which equates to the strongest   degree of construction sector optimism for just over nine years.

Tim Moore, senior economist at Markit and author of the Markit/CIPS   Construction PMI, said:

“UK construction output growth has settled in at a strong pace so far in 2015, although the recovery has lost some of its swagger since last year.

“All three main categories of construction activity saw a growth slowdown in March, in part reflecting softer new business gains, as some clients delayed spending decisions ahead of the general election.

“However, UK construction companies are highly upbeat about their prospects for growth