January data has indicated that UK construction companies started the year with an acceleration of output growth, boosted by sharp rises in incoming new work. Stronger demand resulted in a marked increase in employment numbers across the construction sector, as well as improved confidence about the business outlook for the next 12 months.
Adjusted for seasonal factors, the Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) registered 64.6 in January, up from 62.1 in December and above the neutral 50.0 value for the ninth successive month. Moreover, the latest index reading pointed to the sharpest overall expansion of UK construction activity since August 2007.
Output growth at the start of 2014 reflected rising levels of activity across all three broad areas of construction monitored by the survey. Residential construction remained the best performing sub-category, with the latest expansion of housing activity the steepest since November 2003. Meanwhile, commercial building work and civil engineering activity both increased sharply during January, and in each case, the latest expansion was the steepest since the summer of 2007.
Volumes of new work received by UK construction companies increased for the ninth successive month in January. In line with the trend for output, the latest overall rise in new orders was the fastest since August 2007. Anecdotal evidence from survey respondents widely suggested that an ongoing upturn in domestic economic conditions, alongside greater access to finance among clients, had boosted new business volumes at the start of the year. Moreover, latest data indicated a strong degree of positive sentiment towards the outlook for business activity over the next 12 months.
Confidence about the year ahead was the most positive since September 2009, which in turn supported job hiring in January. Higher levels of employment have now been recorded in the construction sector for eight consecutive months, which is the longest continuous period of job creation since early 2008. Higher levels of business activity meanwhile boosted input buying across the construction sector in January. The latest expansion of purchasing activity was the steepest since August 2007.
Stronger demand for construction materials contributed to a further steep deterioration in supplier performance at the start of the year. Longer vendor delivery times have been reported in each month since September 2010, which survey respondents have generally linked to reduced capacity and low stocks at suppliers. Meanwhile, latest data indicated a sharp rise in average cost burdens, despite the rate of inflation easing to a five-month low.
Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: “January’s survey provides reassurance that the UK construction recovery remains on track. The latest data show positive developments on a number of fronts, with job creation rebounding at the start of the year while output and new business growth was the fastest since the summer of 2007.
,“Housing activity growth now stands at its strongest for just over a decade, boosted by growing demand for new homes and improving confidence within the UK property market. Meanwhile, strengthening domestic economic conditions spurred greater spending on commercial projects in January.
,“While input cost inflation eased in January, there were again signs that some suppliers are struggling to adjust to greater demand for construction materials. Vendor lead-times were lengthening even before the surge in construction output began last year, and now firms are reporting that cutbacks to capacity have caused supply bottlenecks as demand picks up across the sector
