Markit/CIPS Construction PMI

Modest growth recorded as commercial building slump weighs down housing boost

New construction orders reached a seven-month high in December thanks in part to a buoyant housing sector, new figures have revealed.

The latest Markit/CIPS UK Construction purchasing managers’ index (PMI) indicated the highest number of new jobs created since last June, but supply chain pressures remained intense across the construction sector and input cost inflation picked up from November’s 14-month low.

The seasonally adjusted PMI posted a score of 52.2 in December, down from 53.1 in November but still above the 50.0 no-change threshold, indicating modest industry growth for the third consecutive month.

Survey respondents indicated that house-building remained a key engine of growth, with residential work expanding for the 16th consecutive month in December. In contrast, the data indicated a moderate fall in commercial construction, continuing the downward trend seen since July. Civil engineering work stabilised after a three-month period of decline.

December data pointed to resilient demand for new construction projects, as highlighted by the fastest upturn in new order volumes since May. Anecdotal evidence cited an improved flow of enquires in recent months, alongside a gradual upturn in clients’ willingness to commit to new work, the survey found.

The prospect of more work ahead resulted in stronger rises in employment and purchasing activity during December. In fact, the latest upturn in input buying was the steepest for two years, which survey respondents broadly linked to increased business requirements. Robust demand for construction products and materials contributed to another sharp lengthening of suppliers’ delivery times at the end of 2017.

Cost pressures persisted across the construction sector, driven by rising prices for a range of inputs. Prices are rising for blocks, bricks, insulation and roof tiles as well as for just about anything that is imported. Although the rate of input cost inflation was up, it remained softer than February’s peak.

Tim Moore, associate director at IHS Markit and author of the IHS Markit/CIPS Construction PMI, said: “The UK construction sector achieved a moderate expansion of business activity at the end of 2017, although the recovery remained uneven and slowed overall since November. Construction companies indicated that another strong contribution from house-building helped to offset subdued civil engineering activity and reduced volumes of commercial work.

“Total new orders picked up at the fastest pace for seven months in December, which provides a positive signal for construction workloads in the short-term. Resilient demand and forthcoming project starts also led to greater job creation and the strongest increase in input buying for two years.

“However, construction firms indicated that longer-term business confidence is still relatively subdued, largely reflecting concerns about the domestic economic outlook. Exactly 37% of the survey panel forecast a rise in construction activity over the course of 2018, while around 11% anticipate a reduction. As a result, the balance of UK construction companies expecting growth in the year ahead remains among the weakest recorded by the survey since mid-2013.”

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, added: “The sector offered little in terms of comfort at the end of 2017, though the pace of new business picked up to its strongest level since May, and purchasing activity rose to its fastest rate in two years, supply chains were under increasing pressure from all sides.

“The housing sector was the strongest performer again and materials for residential building were in greater demand fuelling longer delivery times, shortages of key materials and sharper input cost rises.

“It appears that the continued fall in commercial activity was testament to Brexit-related uncertainty on the horizon and the sector’s fear about the direction of the UK economy as clients still hesitated to spend on bigger projects.

“Business optimism was subdued at levels not seen since 2013, but the improvement in new order growth in December contributed to the biggest surge in job creation since June. Construction firms still anticipated future new work, in spite of the climate of continued uncertainty and wanted to ensure that skilled talented people were in place should the New Year offer more success than expected.”

Housing leads construction revival as output makes modest rebound

Generic Lovell housing imageConstruction output appears to have experienced a rebound last month with business activity rising at its strongest rate since June, according to new figures.

Latest returns for the Markit/CIPS UK Construction Purchasing Managers’ Index survey also indicated that new orders and employment numbers increased in November more than they had done in the last five months.

However, the improvement in construction growth was largely confined to residential work. Civil engineering is now experiencing its longest period of decline since the first half of 2013.

Adjusted for seasonal influences, the IHS Markit/CIPS UK construction purchasing managers’ index (PMI) picked up from 50.8 in October to 53.1 in November. The latest reading was the highest for five months and above the 50.0 no-change value for the second month running.

House building projects were again the primary growth engine for construction activity. Survey respondents suggested that resilient demand and a supportive policy backdrop had driven the robust and accelerated upturn in residential work.

Commercial construction was the weakest performing area of activity in November, which continued the trend seen for much of 2017 so far.

Some firms noted that Brexit-related uncertainty and the subdued economic outlook had held back spending among clients.

Meanwhile, civil engineering activity fell for the third successive month, which represents the longest phase of decline seen for over four years. That said, the latest drop in work on civil engineering projects was only marginal. Some survey respondents commented on hopes that forthcoming tender opportunities on infrastructure programmes (particularly energy and transport) would help to support workloads. Construction companies indicated a moderate rebound in new orders in November, with the rate of expansion the fastest for five months. Anecdotal evidence cited a general improvement in client demand after the soft patch this summer.

Higher levels of new work helped to support a moderate rise in staff numbers and input buying in November. Lead-times for construction products and materials lengthened sharply, linked to pressure on supplier capacity. However, cost inflation eased to its least marked for 14 months, with some firms reporting signs that exchange-rate driven price rises had started to lose intensity.

Business confidence regarding the year-ahead outlook for construction activity remained among the most subdued since mid-2013, which panel members mainly linked to heightened political and economic uncertainty. However, the degree of optimism picked up from October’s 58-month low, helped by a modest recovery in new invitations to tender during the latest survey period.

Tim Moore, associate director at IHS Markit, said: “UK construction companies experienced a solid yet uneven improvement in business conditions during November.

“Once again, resilient house building growth helped to offset lower volumes of commercial work and civil engineering activity.

“The latest drop in civil engineering was linked to a recent lack of tender opportunities for infrastructure-related projects.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, said: “It appears that policy support and a small recovery in the UK economy has boosted sentiment and encouraged clients to come out of their shells and start building again.

“The housing sector was the primary driver of growth increasing at the fastest rate for almost half a year. “However it is private sector companies that need to commit to big ticket spending, with commercial development still underperforming as persistent Brexit uncertainty continues to bite.

“Overall, the sector showed an incremental improvement, but business optimism was on the rise and up from last month’s five-year low.

“Perhaps the darkest days are behind the sector with fresh impetus on the horizon for the New Year.”

The Scottish division of partnership housing provider Lovell reacted positively to the figures, reporting positive progress during 2017 while predicting a significant step-up in the number of new homes it expects to be able to deliver across Scotland during 2018.

Regional managing director for Scotland, Stephen Profili, said: “Lovell has seen good progress in Scotland during 2017 and there are good signs of substantial levels of investment going in to help make the Scottish Government’s five-year 50,000 new affordable homes target a reality. Looking ahead to 2018, Lovell expects to be in a position to increase significantly our delivery of new homes. Current projections are that Lovell will deliver in the region of 600 units across 12 project sites in Scotland in the course of next year, a significant increase on our 2017 output. More than 90% of these new homes will be for social rent with the remainder being for open market sale.”

Mr Profili added: “Planning policy does continue to present obstacles to housing delivery and the industry will be looking forward to seeing a positive impact from the Scottish Government’s ongoing plans for planning reform. However, government and industry also need to work together to tackle issues around skills, capacity and innovation. In particular, to have a real chance of delivering new homes on the scale needed to meet demand here in Scotland, we will need to see real innovation in the processes and techniques we use to build houses in the future.”

UK construction activity rises slightly in October, but optimism falls to lowest for almost five years

Building Site Shutterstock

UK construction companies have signalled that business conditions remained subdued during October. Output growth was largely confined to house building, which partly offset lower volumes of civil engineering and commercial activity.

Moreover, the balance of construction firms expecting an increase in business activity over the next 12 months eased to its weakest since December 2012.

Caution in terms of the outlook for construction workloads meant that employment numbers increased at one of the slowest rates seen over the past four years.

At 50.8 in October, up from 48.1 in September, the seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) moved back above the 50.0 no-change mark. However, the latest reading was weaker than the post-crisis trend (54.7) and signalled only a marginal rise in overall construction output.

Commercial building decreased for the fourth month running in October, which survey respondents liked to worries about the UK economic outlook and subsequent delays to decision-making among clients. Civil engineering was the worst performing sub-category, with some firms citing a lack of bigticket infrastructure projects to replace completed contracts.

A solid increase in residential building work underpinned the slight upturn in overall construction output during October. The latest rise in housing activity was faster than in September, but still subdued in comparison to the average for 2017 to date.

October data pointed to a marginal increase in new work across the construction sector, thereby ending a three-month period of decline. However, the rate of new order growth remained weaker than recorded at any time from mid-2013 to early last year. Survey respondents generally cited fragile client demand, with heightened economic and political uncertainty acting as a brake on growth.

The index measuring construction firms’ expectations for business activity over the year ahead signalled that optimism dipped to a 58-month low in October. Anecdotal evidence widely linked the drop in confidence to concerns about UK economic prospects and a lack of new projects in the pipeline. As a result, job creation remained subdued in October and input buying increased only marginally.

Intense supply chain pressures were recorded again in October, driven by low stocks and constrained capacity among vendors. Some firms noted that a recovery in demand for construction products across the euro area had added to cost pressures, alongside the weaker sterling exchange rate. Input prices increased sharply, but the rate of inflation remained softer than the near six-year peak seen at the start of 2017.

Tim Moore, Associate Director at IHS Markit and author of the IHS Markit/CIPS Construction PMI: “Greater house building was the sole bright spot in an otherwise difficult month for the construction sector. Sustained declines in civil engineering and commercial activity meant that large areas of the building industry have become stuck in a rut. “Reduced tender opportunities and fragile demand are placing a dark cloud over the near-term outlook. October survey data indicated that UK construction companies are now the least confident about their forthcoming workloads since December 2012. Staff recruitment has also begun to tail off as construction companies head into the winter with heightened concern about demand conditions.

“The recent soft patch for civil engineering activity has been the most severe for around four-and-a-half years, linked to a shortfall of new contracts to replace completed work on infrastructure projects.

“Commercial building also fell in October, with survey respondents noting that concerns about near-term UK economic prospects had impacted on private investment and led to delayed spending decisions.

“Residential work has been a key growth engine for construction so far in 2017. However, some firms commented on renewed apprehension about the durability of house building outperformance, which has been achieved against a backdrop of sustained policy support and ultra-low interest rates.”

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, said: “Though construction orders have shown a small improvement for the first time in four months, the sharp fall in business confidence will send a chill down the spine.

“With the lowest optimism since December 2012, purchasing managers blamed a slowdown in work from commercial clients, vanishing civil engineering projects and an increasing weariness over Brexit for the lack of performance, weak pipelines and slowdown in job hires.

“Supply chains were under the cosh again this month, as buyers struggled to get the materials and products they needed due to low stocks and squeezed supply, exacerbated by increased construction demand in the Eurozone. There were also reports of increasing shortages in some raw materials which slowed work already underway.

“Housing continued to show the strongest foundations and is set to be the main driver of growth in the coming months but the prospect of softer consumer demand and rising costs will impact. Any heavy reliance on residential building alone would be foolhardy with interest rate rises on the horizon and availability of skilled workers lacking in the sector, unless the Chancellor pulls a rabbit out of the hat and supports the training of new construction workers, the pound recovers some stability and a surge of supply capacity become available.”

Construction activity falls for first time in more than a year

construction-stockA sustained drop in new work has led to the first reduction in overall UK construction activity since August 2016.

The Markit/CIPS UK Construction Purchasing Managers’ Index fell to 48.1 last month from 51.1 in August. The latest reading signalled the steepest decline in overall construction output since July 2016.

Survey respondents attributed the drop in workloads to Brexit-related confidence jitters and commercial clients turning their back on risk.

Lower volumes of construction work reflected marked falls in both commercial and civil engineering activity during September. The reduction in civil engineering work was the steepest for almost four-and-a-half years, which some firms linked to a lack of new infrastructure projects to replace completed contracts.

Construction buyers were also pessimistic about future prospects with optimism for the next 12 months hitting its second lowest level since April 2013.

Tim Moore, associate director at IHS Markit and author of the report, said: “A shortfall of new work to replace completed projects has started to weigh heavily on the UK construction sector.

“Aside from the soft patch linked to spending delays around the EU referendum, construction companies have now experienced their longest period of falling workloads since early 2013.

“Fragile client confidence and reduced tender opportunities meant that growth expectations across the UK construction sector are also among the weakest for four-and-a-half years.

“At the same time, cost pressures have intensified, driven by supply bottlenecks and rising prices for imported materials.

“Commercial development has been the worst performing category in recent months. Construction firms attributed falling volumes of commercial work to subdued business investment and reduced risk appetite among clients, linked to heightened economic and political uncertainty.

“Civil engineering work decreased at its fastest pace since April 2013, which prompted concerns from survey respondents about a near-term lack of new infrastructure projects.

“House building slipped down a gear in September, which highlighted that fragile confidence has spread across all three key market segments.”

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, added: “A dismal picture of construction emerged this month as the sector showed signs of worsening business conditions across the board. With the biggest contraction in overall activity since July 2016, and a drop in new orders, optimism was in short supply.

“Respondents pointed to obstructive economic conditions and the Brexit blight of uncertainty, freezing clients into indecision over new projects. Even housing, the stalwart of the construction sector stuttered with a dwindling performance, but civil engineering was the biggest victim falling to its weakest level for four and a half years.

“The contagion continued all along the supply chain as material shortages placed a strain on delivery times and increased commodity prices were affected by the weak pound.

Despite a marginal increase in employment figures, this wasn’t enough to dispel the descending autumnal gloom where it is unclear where any major shift in momentum for the sector will come in the next few months.”

Howard Archer, chief economic advisor to the EY ITEM Club, said the “hugely disappointing survey” will fuel suspicion that the construction sector likely contracted again in the third quarter.

He said: “The Markit/CIPS purchasing managers’ survey shows construction activity lost momentum for a fourth month running in September to register its first contraction since August 2016.

“Specifically, the headline index fell back to a 14-month low of 48.1 in September from 51.1 in August, 51.9 in July, 54.8 in June and a 17-month high of 56.0 in May.  This points to only marginal expansion given a reading of 50.0 indicates flat activity.

“The overall marked loss of momentum in construction activity in recent months points to heightened economic, political and Brexit uncertainties fuelling clients’ caution over committing to new projects.”

Mr Archer added: “It looks highly probable that construction output contracted in Q3 and was a drag on GDP growth, although the sector only accounts for 6.1% of total output.

“Latest hard data from the ONS shows that construction output fell 0.9% month-on-month in July, which was a fourth successive decline. Consequently, construction output was down 1.2% in the three months to July compared to the three months to April. Furthermore, construction orders fell 7.8% quarter-on-quarter in the second quarter to be at the lowest level since the first quarter of 2014.”

On the outlook for construction, he said: “Muted economic activity and appreciable economic and political uncertainties threaten to be a highly challenging combination for the construction sector over the coming months.

“Furthermore, despite the improvement in housebuilding activity in August, there is a possibility that house building activity could be pressurized by extended lacklustre housing market activity and subdued prices amid weakened consumer fundamentals.

“There is the particular concern that potential clients will be cautious over committing to major projects if economic, political and Brexit uncertainties remain elevated over the coming months.

“Construction companies will be hoping that recent government measures aimed at boosting infrastructure and housebuilding have a material beneficial impact.”

Construction output growth hits 12-month low in August

Home building stockGrowth in the UK’s construction industry slid to its lowest level for 12 months in August, as new orders for commercial work dropped for the second month in a row.

Data from the latest Markit / CIPS Construction PMI, which measures expectations of growth — came in at 51.1 for the month of August.

That was down from an already weak reading of 51.9 in July, and also below the 52 reading expected by economists polled prior to the release.

Reduced levels of commercial work were a key source of weakness, which offset robust growth in residential building. There were also signs of a sustained soft patch ahead, with new business volumes falling for the second month running.

Survey respondents linked subdued demand to reduced business investment and heightened economic uncertainty. As a result, construction firms exerted greater caution in terms of their staff hiring, with employment numbers rising at the slowest pace since July 2016.

Tim Moore, associate director at IHS Markit and author of the IHS Markit/CIPS Construction PMI, said: “UK construction companies indicated that lacklustre growth conditions persisted during August.

“Civil engineering work stagnated, which meant that the construction sector was reliant upon greater house building activity to deliver an outright expansion in output volumes. Commercial development remained by far the worst performing category, with business activity falling at the fastest pace since July 2016.

“Survey respondents noted that subdued business investment and concerns about the UK economic outlook had led to a lack of new work to replace completed projects, especially in the commercial building sector.

“There were signs that UK construction firms are bracing for the soft patch to continue into this autumn, with fragile business confidence contributing to weaker trends for job creation and input buying during August.”

Cost pressures were the weakest since September 2016. Survey respondents noted that exchange rate depreciation continued to drive up prices for construction materials, but some commented on successful negotiations with suppliers against a backdrop of softer market conditions.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, said: “The sector hit a roadblock this month as purchasing activity slowed for the third month and new business wins were hard to come by.

“Reduced Government spending, economic uncertainty and Brexit-delayed decision-making among clients were largely to blame.

“The struggling commercial sector drove this disappointment, languishing under the pressure with the fastest drop in activity in over a year.

“In the near-term future, without those new orders waiting in the wings, the performance of the construction sector is likely to continue to be downbeat.”

Construction activity falls to 11-month low

building stockA slowdown in the commercial building market in July resulted in construction confidence falling to its lowest level since last August, according to the latest monthly survey of industry purchasing managers.

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) dropped from 54.8 in June to 51.9 in July, to signal the weakest construction performance since August 2016.

Lower levels of commercial construction were a key factor holding back overall business activity growth in July, according to the survey. Although only modest, the reduction in commercial activity was the fastest for 12 months. A number of survey respondents cited delays in decision making by clients, linked to worries about the economic outlook and heightened political uncertainty.

Residential building remains the strongest performing sector, although the latest rise was the slowest for three months. The only upturn in output growth was in the civil engineering sector.

Construction firms commented on greater reluctance to commit to new projects among clients in July. Weaker demand led to an overall reduction in new business volumes for the first time since the post-referendum rebound began in September 2016.

Deteriorating order books resulted in more cautious staff recruitment policies, as highlighted by a moderation in employment growth to its slowest for 11 months. Sub-contractor usage also decreased during the latest survey period.

July data suggested that UK construction companies responded to lower sales by tightening up purchasing activity at their business units. The latest increase in input buying was only marginal and the weakest since March. Delivery times for construction materials continued to lengthen, which survey respondents linked to low stocks and stretched capacity among suppliers. Meanwhile, input cost inflation remained elevated and close to the peaks seen at the start of 2017, which was partly linked to prices for imported items.

Tim Moore, associate director at IHS Markit and author of the IHS Markit/CIPS Construction PMI, said: “Worries about the economic outlook and heightened political uncertainty were key factors contributing to subdued demand.

“Construction firms reported that clients were more reluctant to spend and had opted to take longer in committing to new projects.”

Sarah McMonagle, director of external affairs at the Federation of Master Builders (FMB), said: “These figures represent the weakest monthly performance in the UK construction industry for almost one year. Construction companies are suffering from ever-increasing costs and this is starting to act as a drag on growth. More specifically, the increase in construction material prices and higher wages and salaries due to the construction skills shortages will no doubt have contributed to these disappointing results.

“The commercial sector in particular fell at its fastest pace for 12 months but we also saw a loss of pace among house builders. However, although the construction sector is growing at a slower pace, it is still growing and therefore there is no reason to panic.”

Housebuilding helps drive construction growth to 17-month high

Home building stockUK construction companies have reported an increase in business activity at the fastest rate for 17 months.

The latest Markit/CIPS UK Construction Purchasing Managers’ Index, a monthly survey of construction buyers, rose to 56 in May, up from 53.1 in April.

The survey revealed the fastest upturn in residential work since the end of 2015, as well as a sustained recovery in new work, following the soft patch seen during the first quarter of 2017.

Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS Construction PMI, said: “May’s survey data reveals that the UK construction sector has started to recover strongly from its slow start to 2017.

“House building was the key growth driver, with work on residential projects rising at the fastest pace since December 2015.

“A sustained rebound in residential building provides an encouraging sign that the recent soft patch for property values has not deterred new housing supply.

“Instead, strong labour market conditions, resilient demand and ultra-low mortgage rates appear to have helped boost work on residential development projects in May.

“Civil engineering continued to flourish, helped by a strong pipeline of infrastructure projects.

“However, commercial building was trapped in the slow lane amid reports highlighting that heightened economic uncertainty is holding back client spending.

“The forward-looking elements of the latest survey are reassuring for the construction sector, notably the acceleration in new business growth to its strongest so far this year.

“On the price front, while construction costs have ratcheted up over the past six to nine months, the wave of inflation from imported materials now appears to have passed its peak.”

Partnership housing developer Lovell said the figures reflect strong performance for the business in Scotland.

Regional managing director for Lovell in Scotland, Stephen Profili. said: “The residential sector of the industry is continuing to perform strongly and this is reflected in these latest figures and the broad range of projects Lovell is currently working on in Scotland. Increasing costs due to the ongoing weakness of the pound are having an impact but not enough to dampen the generally buoyant housebuilding sector.

“As a business, Lovell remains firmly focused on delivering the housing Scotland needs, with a strong emphasis on building new affordable homes in significant numbers. As various projects approach completion, we’re looking forward to bringing many more new homes to the market over the remaining seven months of 2017 and beyond.”

Civil engineering drives construction growth in April

Markit CIPS May 2017An increase in civil engineering and residential building activity has fuelled the biggest monthly output rise of the year so far in the UK construction sector, new figures have shown.

The latest Markit/CIPS UK Construction Purchasing Managers’ Index rose to 53.1 in April from 52.2 in March.

Civil engineering work enjoyed its sharpest increase since March 2016 while the acceleration of residential jobs also reached a four-month high.

The number of new jobs created also hit its strongest level since May 2016.

Respondents to the monthly survey of construction purchasing managers have linked the growth to the resilient economic backdrop and a sustained improvement in client demand.

Meanwhile, robust demand for construction materials and upward pressure on costs from sterling depreciation resulted in another steep increase in input prices during April.

Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS Construction PMI, said: “April’s survey reveals a positive start to the second quarter of 2017, with a robust upturn in civil engineering activity helping to boost the construction industry. There were also more encouraging signs from the house-building sector, as growth recovered to its strongest so far this year. However, the performance of the commercial building sector remained subdued in the context of the past four years.

“UK construction companies noted that the resilient economic backdrop helped to drive up client spending in April. Greater workloads led to the fastest pace of job creation since May 2016 and a continued squeeze on subcontractor availability.

“Supply chain pressures also intensified, as highlighted by the largest lengthening of delivery times for almost two years. A sharp rate of input cost inflation persisted in April, reflecting an ongoing pass through of higher commodity prices, imported goods and energy costs. However, the recent recovery in sterling may have started to help limit some cost pressures in April, as the overall rate of input price inflation moderated to a six-month low.”

Weaker housing activity growth weighs on UK construction sector

pmi-march2017Purchasing managers have reported a slowdown in growth across the UK construction sector, led by a weaker rise in residential building activity.

The latest Markit/CIPS UK Construction PMI survey for March 2017 also pointed to only a marginal increase in new work, which contributed to slower employment growth and a slight decline in input buying.

However, construction companies remain relatively upbeat about their near-term growth prospects, partly reflecting a stabilisation of client confidence from the post-referendum lows seen in 2016. Optimism regarding year-ahead business activity picked up in March to its second-highest since December 2015.

The seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) dropped from 52.5 in February to 52.2 in March, to signal the joint-slowest upturn in overall construction output since the current period of expansion began in September 2016. Softer growth primarily reflected a loss of momentum in housing activity, which offset a rebound in both commercial and civil engineering activity. The latest increase in work on civil engineering projects was the fastest so far in 2017 and the strongest of the three sub-categories monitored by the survey in March.

Subdued new business growth persisted in March, with the rate of expansion unchanged from the four-month low seen in February. Construction companies noted that squeezed client budgets had acted as a brake on new business growth. There were also reports citing planning delays and greater cost consciousness among clients.

At the same time, survey respondents noted that reduced Brexit-related anxiety and the resilient economic backdrop had a positive impact on new invitations to tender. This helped underpin an improvement in business confidence regarding the growth outlook. Almost half of the survey panel expect a rise in business activity during the year ahead, against only 9% that forecast a decline.

Construction companies recorded a solid increase in employment numbers in March, although the pace of job creation eased to a three-month low. Meanwhile, sub-contractor usage dipped slightly since February, but construction firms continued to report a sharp drop in the availability of sub-contractors.

Input buying declined for only the second time since September 2016, which was mainly linked to subdued new business growth in March. Supplier performance nonetheless deteriorated at one of the fastest rates seen over the past two years, driven by low stocks among vendors.

Input cost inflation remained strong in March, linked to higher prices for imported materials and global commodity price rises. However, the overall rate of cost inflation eased further from the eight-and-half year peak seen in January.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, said: “Where the housing sector acted as the main engine of growth over the last four years, this month it was slower and stuttering, while overall purchasing activity in the construction sector was disappointingly tame, shackled by a lack of new orders and rising costs.

“This downbeat effect took a small bite out of any strong rises in employment levels, as the increase in staff hiring was at a three-month low. But as the sector showed strong optimism for future business, concerns over the skilled labour availability are likely to persist in coming months.

“Pressure on suppliers remained intense, as they battled against lower stocks and made greater efforts to fight the pincer movement of a shortage in some materials and the continued force of higher global commodity prices.

“Now the trigger has been pulled to propel the UK out of the EU, the construction sector must keep an attentive eye on how the UK Government’s negotiations will play out and whether consumer and business caution returns to hamper further progress.”

Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS Construction PMI, added: “UK construction firms experienced a growth slowdown in March, with the loss of momentum centred on housebuilding. A weaker trend for residential work has been reported throughout 2017 so far, which provides an indication that the cooling UK housing market has started to act as a drag on the construction sector.

“Civil engineering projects were the construction sector’s main growth engine in March, driven by rising infrastructure spending and a strong pipeline of new work throughout the UK.

“March data showed a slight rebound in commercial construction activity. Survey respondents noted that the resilient economic backdrop and receding Brexit-related anxieties have helped to stabilise client demand after the disruption to development projects last summer.

“Despite a relatively subdued rise in new work during March, UK construction firms reported a more sanguine assessment of their year-ahead growth prospects. Business confidence was among the highest seen since the end of 2015, which construction companies linked to upcoming tender opportunities, plans for increased marketing expenditure and hopes of a sustained recovery in clients’ willingness to spend.”

Cost pressures remain at an eight and-a-half year high

Markit CIPS survey Feb 2017Construction companies have reported the second-fastest rise in input costs since August 2008 with some firms warning that the rise is causing contract completion delays.

The latest Markit/CIPS survey revealed that intense cost inflation persisted in February, which was overwhelmingly linked to higher prices for imported materials.

Respondents to the survey noted that the resilient economic backdrop and a stabilisation in client confidence since the EU referendum continued to help drive construction growth in February. However, there were also reports that demand growth had softened so far in 2017.

Reflecting this, incoming new work increased only marginally and at the slowest pace since last October.

Some construction companies noted that sharply rising input costs had an adverse impact on decision-making and contributed to delays in contract completions.

According to the Construction Purchasing Managers’ Index, housing growth softened to its slowest pace for six months in February, leaving civil engineering as the industry’s key growth driver.

The latest index recorded 52.5 in February, up slightly from 52.2 in January, but weaker than the post-referendum peak of 54.2 in December 2016.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, said: “Overall, the sector’s optimism was still high as workloads remained strong, propped up by the prospect of new projects and repeat business.

“Though the level of new orders was modest, it is the relentless and brutal rise in prices for construction materials, combined with the impact of the weaker pound, that could block the sector’s progress in the coming months.”

He also warned: “The drop in sub-contractor availability was the largest seen since January 2016, against a backdrop of rising employment numbers across the construction sector, which will add to worries around labour market capacity as we move along the path to Brexit.”

Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS Construction PMI, added: “Weaker momentum in the house building sector was a key factor weighing on construction growth, alongside a renewed fall in work commercial projects.

“Survey respondents mainly cited an underlying slowdown in sales growth, with the latest rise in new work the weakest for four months.

“In some cases, construction companies reported that sharply rising input prices had a disruptive impact on contract negotiations.

“February data revealed that input cost inflation remained at levels last seen in the summer of 2008. Suppliers’ efforts to pass on rising energy costs and global commodity prices have been amplified by the weak sterling exchange rate.”