Sharpest expansion of construction output for eight months

MarkitSharp rises in housing, commercial and civil engineering activity ensured that output growth across the UK construction sector remained strong in September.

However, while the overall performance of the construction sector was close to its strongest since the summer of 2007, latest data indicated that new order growth and job creation both eased to their lowest for four months.

Moreover, supply chain pressures resulted in a further steep increase in input costs, as well as further delays in the receipt of construction materials.

The seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) posted 64.2 in September, up fractionally from 64.0 in August. The latest reading signalled a sharp expansion of overall construction output that was the steepest since January (and the second-fastest seen over the past seven years).

The rise in the headline index was driven by an acceleration in both commercial and civil engineering activity growth during September.

Commercial construction increased at the strongest pace since January, while civil engineering output rose at the most marked pace for six months.

Meanwhile, housing activity remained the fastest growing area of construction output in September, but the rate of expansion eased to its weakest since May.

Survey respondents widely linked sustained construction output growth to the improving economic backdrop and an associated improvement in clients’ willingness to spend.

Moreover, some firms noted that greater business investment spending patterns, alongside a ripple effect from ongoing housing market strength, had helped boost commercial development activity during September.

Robust construction output growth in September was supported by a further strong expansion of incoming new work. That said, the latest increase in new business was the least marked since May.

September data pointed to a further moderation in job creation across the construction sector from July’s survey-record high. Sub-contractor usage increased for the fourth month running and the squeeze on sub-contractor availability remained substantial, despite moderating from August’s 17-year record.

Alongside pressures on skilled staff availability, construction companies pointed to ongoing supply chain bottlenecks in the wake of strong demand for construction materials in September. Latest data indicated that delivery times from vendors lengthened sharply over the month, with survey respondents mainly citing low stocks of bricks and blocks at suppliers.

Looking ahead, construction firms are highly upbeat about the business outlook, with more than half (54 per cent) expecting a rise in activity over the next 12 months and only 12 per cent forecasting a fall. However, the latest survey signalled that the degree of positive sentiment eased since August and was the lowest for almost a year.

Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: “UK construction firms experienced a sustained and strong output recovery during September, in contrast to the weakening picture seen across the manufacturing sector at the end of this summer. Survey respondents highlighted that improving domestic economic conditions helped boost funding availability and foster confidence towards largescale project commitments, especially in the commercial development sector.

“Housing activity remains the brightest spot in the construction sector, but its outperformance has started to fade. Moreover, residential construction continues to see the most intense pressures on supply chains and skilled labour availability.

“Looking ahead, construction firms are more cautious about their prospects for output growth than at any time since October 2013. Although positive overall, a range of factors tempered business optimism in September, including strong cost pressures, concerns about skilled labour supply and signs that house building growth has cooled from the multi-year records set earlier in 2014.”

David Noble, group chief executive officer at the Chartered Institute of Purchasing & Supply, said: “The construction industry’s strong performance continued unabated in September, sending out a reassuring message about the underlying health of the UK economy. As a sector, construction is sensitive to changes in economic fortune, so the fact that we are witnessing sustained growth bodes well as we enter the final quarter of 2014.

“Domestic housing’s mantle of star performer was dislodged slightly in September, with growth in commercial and civil engineering activities accelerating notably. The rise in commercial activity was the second-fastest since the summer of 2007 and could be the most telling as it represents businesses’ willingness to invest; they are putting their money where their mouth is.

“However, pressure points in the industry are becoming ever more acute as suppliers race to catch up after years of caution and capacity cutting. This is borne out in supply chain bottlenecks as a result of strong demand for construction materials, a squeeze on subcontractor availability and the lengthening of vendor delivery times. Years of caution may now impede the sector’s performance if suppliers cannot re-stock and hire at a speed that demand requires.”

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