(Sharecast News) – House building underpinned the UK construction sector in December, according to a survey released on Thursday.
The IHS Markit/CIPS construction purchasing managers’ index dipped to 54.6 from 54.7 in November. This was a touch below expectations for a reading of 55.0 but above the 50.0 mark that separates contraction from expansion for the seventh month in a row.
House building was the biggest contributor, while commercial activity also expanded, although the rate of growth eased to its lowest since the recovery began last June. Civil engineering was the worst-performing category, with activity falling for the fourth time in the past five months.
Tim Moore, economics director at IHS Markit, said the December data illustrated a positive end to the year for the UK construction sector, mostly fuelled by a sharp rebound in house building.
“Overall output growth has slowed in comparison to the catch-up phase last summer, but now it is encouraging to see the recovery driven by new projects and stronger underlying demand.
“A sustained improvement in construction order books resulted in a rise in employment numbers for the first time in nearly two years and the most optimistic growth expectations since April 2017.
“Construction companies are hopeful that higher demand will broaden out beyond residential projects in the next 12 months, led by infrastructure spending and a potential rebound in new commercial work from the depressed levels seen during the pandemic.
“Transport delays and a lack of stock among suppliers were the main difficulties reported by UK construction firms at the end of 2020, which contributed to the fastest rise in purchasing prices for nearly two years.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, noted that the construction sector has continued to fare better than the rest of the economy.
“Looking ahead, the 27% year-over-year jump in gross public sector investment planned for 2021/22 will provide a big boost to the construction sector. In addition, overseas investors might be willing to supply more finance for U.K. construction projects, now that the risk of a Brexit-driven depreciation of sterling has gone.
“Nonetheless, the recent rise in mortgage rates suggests that demand for new homes will weaken, once the threshold for stamp duty has returned to £125K at the end of March. Meanwhile, the post-pandemic utilisation of office space and city centre buildings remains highly uncertain; a permanent shift towards working-from-home would greatly reduce demand for new commercial construction. Accordingly, we do not expect construction output to recover to its pre-Covid peak until early 2022.”
