Construction output growth rebounds at the start of 2015

January data pointed to a positive start to the year for the UK construction sector, with output and new business growth rebounding from the lows seen in December. That said, the rate of job creation slipped to a 13-month low and the degree of business optimism among construction firms was the was the second lowest seen since October 2013.

At 59.1 in January, up from 57.6 in December, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) pointed to a robust and accelerated expansion of overall business activity at the start of 2015. The index has registered above the neutral 50.0 threshold for 21 months running, although the latest reading was the second lowest seen since September 2013. As a result, the latest survey indicated that overall growth momentum rebounded since December, but was much weaker than the average for 2014 as a whole (61.8).

All three broad areas of construction activity picked up since December, but in each case the rate of expansion was weaker than the peaks seen in 2014. Residential building was the best performing sub-category in January, with the latest survey marking two years of continuous expansion. Meanwhile, latest data also indicated a robust rise in commercial construction and a rebound in civil engineering activity following the decline recorded in December.

In line with the trend for business activity, volumes of new work increased at a robust and accelerated pace in January. The latest upturn in new work was the fastest for three months, albeit still well below the average for 2014 as a whole. Meanwhile, the rate of job creation eased for the second month running to its weakest since December 2013.

Supply chain pressures persisted in January, as highlighted by a sharp deterioration in vendor performance. Anecdotal evidence suggested that strong demand for construction materials and shortages of spare capacity among suppliers had contributed to longer delivery times at the start of 2015.

The availability of sub-contractors decreased sharply during January, while the latest rise in sub- contractor charges was close to the survey-record high recorded in November 2014. Overall input cost inflation nonetheless eased to its weakest since April 2013, helped by falling energy and fuel prices.

Looking ahead, almost half of the survey panel forecast a rise in business activity over the next 12 months, while less than one-in-ten anticipate a reduction. However, the degree of business optimism was the second-lowest since October 2013, with some firms citing heightened uncertainty about the overall economic outlook.

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

“UK construction companies have found their feet again after a protracted slowdown in output growth at the end of 2014.

“In short, the peak speed of the construction recovery seems to be over, but reports of its death have been greatly exaggerated.

“Expectations in relation to output growth over the next 12 months remained close to December’s low, contributing to a further slowdown in construction sector job creation during January. However, skill shortages persisted at the start of the year, with construction companies indicating that sub-contractor charges increased at a near survey-record pace.

“Strong demand for construction materials resulted in upward pressure on costs and lengthening delivery times from suppliers in January. That said, the latest survey highlighted that lower fuel and energy prices helped drive down overall cost i