Sharpest expansion of construction activity for four months

UK construction companies indicated a further acceleration in output growth during February, driven by the fastest increase in new orders since October 2014. Higher levels of activity were seen in all three sub-categories of construction work, with residential activity again seeing the steepest rate of growth. Strong demand for construction materials, alongside ongoing shortages of stock at suppliers, contributed a steep and accelerated rise in input prices. Moreover, rates charged by sub-contractors increased at the most marked pace since the survey began in April 1997.

Adjusted for seasonal influences, the Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) registered 60.1 in February, up from 59.1 in January and above the neutral 50.0 threshold for the 22nd successive month. The latest reading signalled a sharp expansion of construction output that was the fastest since October 2014.

Survey respondents generally attributed increasing output levels to strong workloads and rising spending patterns among clients. The rate of new business growth was the sharpest since last October. Construction companies mostly linked new business gains to improving economic conditions and positive sentiment towards the business outlook. However, some survey respondents noted that uncertainties related to the outcome of the General Election had resulted in delays to spending decisions among clients.

Higher levels of business activity contributed to further job creation across the construction sector in February. Meanwhile, sub-contractor usage rose at an accelerated pace in February, which led to a reduction in sub-contractor availability. Strong demand for sub-contractors in turn helped push up average rates charged by sub-contractors, with the latest increase the fastest since the survey began almost 18 years ago.

February data pointed to worsening supply-chain pressures across the UK construction sector, as highlighted by vendor delivery times lengthening to the greatest degree since October 2014. Capacity shortages among suppliers and strong demand for construction materials also contributed to a marked upturn in input price inflation since January.

More than half of the survey panel anticipate a rise in business activity over the next 12 months, while less than one-in-ten forecast a reduction. Positive sentiment towards the business outlook was linked to robust pipelines of new work and ‘favourable expectations’ for client spending over the year ahead.

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

“The latest survey highlights renewed vitality within the UK construction sector, as output growth picked up further from the soft patch seen at the end of 2014.”

David Noble, group chief executive officer at the Chartered Institute of Procurement & Supply, said:

“The construction sector is awash with positive sentiment, rejecting wholeheartedly the downbeat end to last year, with the steepest rise in output activity for four months. The good fortune comes in threes – as respondents report a rise in staffing levels, higher levels of new orders and rising rates for sub-contractors.”