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Growth of construction sector activity accelerates to 11-month high
* Stronger expansion of new business supports rise in output
* Employment falls, but only marginally
* Business confidence reaches a nine-month high
February data signalled a solid rise in the UK construction sector output, extending the current sequence of growth to 14 months. The stronger expansion in activity was supported by a sharp rise in new work intakes. However, accelerated growth of both new business and output were insufficient to prevent a fall in employment. Meanwhile, a fourth successive improvement in confidence was indicated.
The seasonally adjusted Markit/CIPS Construction Purchasing Managers' Index posted 54.3 in February. Up from 51.4 in January, the index posted its highest reading since March 2011. February's data pointed to a solid expansion of construction sector output that was in line with the series average.
All three of the broad construction categories monitored - housing, commercial and civil engineering - registered growth of output in the latest survey period. Continuing the recent general trend, commercial was the strongest performing of the sub-sectors, with the latest increase in activity the fastest since September 2010. A rise in civil engineering output was solid, and in contrast to the decrease recorded in the previous survey period. A modest increase in residential construction was indicated.
UK construction companies reported a marked rise in new business during February, with growth the fastest in 21 months. Panellists commented that an increase in successful tenders had supported the rise in new work intakes. Some companies also noted that new contract opportunities were larger and, in some cases, of higher value.
February data signalled a reduction of employment, despite expansions of both activity and new business. Job cuts due to reorganisations at some companies outweighed hiring activity to accommodate higher workflows at others. Nonetheless, the decrease in staffing levels was only marginal. Similarly, sub-contractor usage also fell in February at a marginal pace.
Reflective of increased output, purchasing activity rose again in February and at a solid rate. Insufficient stocks and capacity at vendors led to a further marked lengthening of suppliers' delivery times. Meanwhile, input cost inflation persisted, largely driven by higher energy bills and price rises at some suppliers. However, the latest increase was the slowest in nearly two years.
Sustaining the recent trend, optimism at UK construction companies strengthened in February. Anecdotal evidence suggested that better visibility over pipeline work had led to the rise in confidence. Expectations for improved client sentiment, new marketing initiatives and healthier economic conditions were also frequently cited as factors having a positive impact on confidence during February.
"The slowdown in UK construction sector output growth recorded in January was reversed in February, with a solid increase in activity indicated," reports Sarah Bingham, Economist at Markit and author of the UK Construction PMI.
"This was despite potential headwinds caused by poor weather conditions. The rise in output was supported by a stronger commercial expansion. Residential construction and civil engineering activity also increased, rebounding from contractions last month.
"Perhaps more encouraging was the sharp increase in new business received, which should keep firms busy in the coming months. Reports of rising tender opportunities and greater visibility over potential new work flows also helped to boost confidence about the year ahead, which rose to a nine-month high.
"The improved performance of the construction sector adds to other positive data released on the UK economy. However, it remains to be seen whether GDP growth for the first quarter will be recorded and, if it is, any expansion is likely to be only modest as general economic conditions remain fragile."
Commenting on the report, David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said:
"The construction sector's relatively buoyant start to 2012 continued in February, as sustained growth affirmed the industry's ongoing recovery from the financial crisis in 2008. However, the increase in new work from sizeable contracts was tempered by the moderate dip in overall employment.
"This has not dampened confidence, however, which is at the second highest level seen in 21 months owing to greater visibility of contracts down the pipeline.
"Commercial construction remains the star performer but housing continues to be subdued. This is symptomatic of weak demand that has been prevalent in the market. This week's Bank of England mortgage lending figures, however, bode well for better housing performance ahead."
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2nd March 2012