UK construction sector output grows at fastest pace in eight months

by | Mar 4, 2022

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The UK construction sector grew at its fastest pace in eight months in February, rebounding from the recent Omicron hit, according to a survey released on Friday.
The IHS/Markit CIPS construction purchasing managers’ index rose to 59.1 from 56.3 in January, coming in above expectations for a reading of 57.5. A reading below 50.0 signals contraction, while a reading above indicates growth.

Construction companies continued to report widespread supply constraints and rapidly increasing input costs, although the rate of inflation in the latter was the least severe for 11 months. Nevertheless, ongoing disruption dampened the outlook for activity, with confidence at its lowest since January last year.

The survey found that house building replaced commercial work as the best-performing category, with the index for the former coming at 61.5 from 54.3 in January and for the latter at 58.4 versus 57.6. The gauge for civil engineering printed at 57.5 in February compared to 53.2 the month before.

Usamah Bhatti, economist at IHS Markit, said: “UK construction companies achieved a faster expansion in output volumes in February as the economy recovered from the recent wave of Covid-19 infections related to the Omicron variant. House building had the strongest showing, as signalled by the fastest rise in residential work for eight months.

“Despite continued volatility in price and supply conditions, the overall rate of new order growth accelerated from January to reach the fastest since last August as client confidence improved in line with economic activity as Plan B restrictions were fully lifted.

“Nonetheless, widespread reports of shortages of materials and labour continued to plague the UK construction sector, while rising input costs placed further strain on businesses. It appears that the peak of price pressures has passed as the rate of input cost inflation eased for the sixth month in a row to reach the softest since last March.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Looking ahead, the high level of indicators of business confidence and investment intentions bodes well for the construction sector, though it is likely that commercial property vacancies will rise from March 25, when the moratorium on evictions comes to an end, potentially weakening demand for new buildings.

“Some builders also will benefit from the 8% increase in public sector gross investment in the upcoming 2022/23 fiscal year. Less encouragingly, demand for new homes looks set to be hit by both a sharp fall in households’ real disposable income and an increase in new mortgage rates. But the high level of housing starts- in the four quarters to Q3 2021 were a hefty 15.8% above their 2019 average level- should keep house-builders busy throughout this year. Accordingly, we think that construction output in 2022 will be about 5% higher than in 2021 and will exceed 2019’s average level by around 1.5% at the end of the year.”

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