PMI reports sharpest rise in construction output since 2007

Published:  06 February, 2014

UK construction companies have started the year with accelerated output growth, boosted by sharp rises in incoming new work, according to January data from the Markit/CIPS UK Construction Purchasing Managers’ Index (PMI).

Adjusted for seasonal factors, the 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.

Other findings include:

  • 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 again the steepest since August 2007
  • There was, however, a further steep deterioration in supplier performance at the start of the year due to stronger demand for construction materials. 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.

“January’s survey provides reassurance that the UK construction recovery remains on track,” said Tim Moore, senior economist at Markit and author of the PMI. “The latest data shows 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. A sharp rise in civil engineering activity completed an impressive showing from all three sub-categories of construction monitored by the survey.

“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.”

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, added: “The construction industry has started 2014 in a formidable fashion, enjoying its strongest growth in six and a half years, reinforced by a sharp rise in new business orders. Housing activity growth was the highest in a decade and remains the fastest improving area of construction. This was supported by a solid expansion in civil engineering and commercial activity, confirming a distinctly positive picture across the board.

“Backed by positive domestic market conditions, the growth in new work is continuing to drive employment upwards, and has now been increasing for eight consecutive months. It is also pleasing to see that this is resulting in growing business confidence, with firms expecting to see more activity in the next few months.

“The one area which is beginning to be a concern is the ongoing pressure on suppliers to meet the rush in demand. As the industry’s lifeblood, suppliers are still recovering from the recession, and until they get back to full capacity, the continued lengthening of delivery times may become a restraining force on the sector in the coming months.”

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