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Sharp rise in construction output and orders

Activity Index

Latest IHS Markit/CIPS UK Construction PMI survey indicates fastest rise in output since December 2018

UK construction companies signalled a return to business activity growth during February, following a nine-month period of declining workloads. The latest survey also pointed to the sharpest rise in new orders since December 2015.

Anecdotal evidence mainly linked the recovery to a post-election improvement in business confidence and pent-up demand for new projects.

At 52.6 in February, up from 48.4 in January, the headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index registered above the 50.0 no-change value for the first time since April 2019.

Moreover, the latest reading signalled that the overall rate of construction output growth was the fastest for 14 months.

Survey respondents noted that improved demand had translated into higher levels of business activity in February, particularly in the housing and commercial sub-sectors. There were some reports, however, that severe weather conditions had led to delays on site and acted as a brake on growth.

Residential activity remained the best-performing construction category. Latest data signalled the strongest expansion of house-building activity since July 2018.

Commercial work also returned to growth in February, with the sub-sector posting its fastest increase in business activity since November 2018.

In contrast to the overall trend for construction output, civil engineering activity fell again during February. However, the rate of decline was only marginal and the least marked for 13 months.

February data pointed to a strong recovery in new order intakes across the construction sector. The increase in new work was the steepest recorded for just over four years.

Survey respondents widely commented on greater tender opportunities and the release of spending that had been delayed in the run up to Brexit. There were also reports citing a boost from increased infrastructure contract awards, including those related to HS2.

Purchasing activity also returned to growth in February, which mirrored the trend seen for construction output levels. Stronger demand for inputs placed additional pressure on supply chains, with lead times lengthening to the greatest extent since last October.

According to IHS Markit, construction firms are upbeat about their growth prospects for the next 12 months, and although the degree of optimism has eased since January, it remains much stronger than that seen in the second half of 2019.

Tim Moore, economics director at IHS Markit, which compiles the survey, said: ‘February’s survey data adds to signs that the UK construction sector has started to rebound after a downturn through the second half of last year.

‘Growth of business activity was stronger than at any time since the end of 2018, supported by the fastest rise in new orders for just over four years.

‘Some construction firms suggested that the recovery in output would have been even stronger had there not been disruptions on site from severe weather conditions in February.’

However, Mr Moore warned that while construction order books have begun to recover in the opening part of 2020, the fly in the ointment is the uncertain impact of the coronavirus outbreak on UK economic growth prospects.

‘A renewed slowdown could see domestic investment spending put back on hold and dampen the outlook for the UK construction sector,’ he said.

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