Construction output growth at slowest rate since July 2013

MarkitGrowth in the UK construction sector last month eased to its slowest rate for 17 months, according to new data.

At 57.6, down from 59.4 in November, the latest Markit/CIPS UK Construction PMI index signalled the least marked increase in construction since July 2013. That said, the latest reading was higher than the long-run series average (54.5) and well above the 50.0 value that separates expansion from contraction.

Industry experts said construction was a “victim of its own success” as it “struggles to keep up with its own recovery”.

Housing and commercial work continued a long-term trend of expansion but civil engineering activity decreased slightly ending a 17-month period of continuous growth.

Skills shortages are still worsening during the ongoing recovery while more than half of buyers (52 per cent) anticipate a rise in business activity over the course of 2015 while only 13 per cent forecast a reduction.

Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: “UK construction output growth retreated further in December, but another strong expansion of house building activity ensured that the sector continued to perform impressively overall. Indeed, over the course of 2014, UK construction firms recorded the strongest calendar year of residential building since the survey began in 1997.

“A sharp recovery in house building, as well as resurgent demand for commercial development projects, continued to boost staff recruitment and sub-contractor pay rates across the construction sector in December.

“While new business growth moderated to its lowest for a year-and-a-half in December, UK construction firms are still highly upbeat about their prospects for output growth in 2015.

“Four times as many construction companies (52 per cent) anticipate an upturn in output over the year ahead as those that expect a reduction (13 per cent). Positive sentiment was linked to strong pipelines of work-in-hand and favourable underlying business conditions. However, concerns related to supply chain pressures and deepening skill shortages were prevalent among survey respondents in December.”

David Noble, group chief executive officer at the Chartered Institute of Procurement & Supply, added: “The sector continues on its levelling path this month, with procurement and supply management professionals reporting continued strong growth but with a weaker trajectory than that seen in recent months.

“The sector is still expanding with the index posting at a higher level than the longer-term average, and led primarily by residential development - but it has become a victim of its own success as it struggles to keep up with its own speed of recovery. With increases in new business, comes pressures on the availability of talented staff and a squeeze on the performance of supply chains.

“Still replacing the skills lost in the recession and faced with increasing charges for the sub-contractors used to fill in the shortfall, the sector is enjoying lower commodity prices to balance out costs. As more new business comes in, so vendor performance is being affected and key raw material delivery times are lengthening.

“Levels of positive outlook remain high with 52 per cent of respondents expecting a rise in business activity in 2015, though this month’s sudden drop in the strength of the civil engineering sub-sector and this year’s General Election is adding a note of caution.”

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