Home News Housing keeps construction growing as commercial work continues to weaken

Construction output growth eased slightly in December 2017 according to the latest IHS Markit/CIPS UK Construction Purchasing Managers Index (PMI) survey. Survey respondents indicated that house building remained a key engine of growth, with residential work expanding for the sixteenth consecutive month in December. In contrast, latest data indicated a moderate fall in commercial construction, thereby continuing the downward trend seen since July.

The seasonally adjusted PMI posted 52.2 in December, down from 53.1 in November but above the 50.0 no-change threshold for the third month running. As a result, the latest reading signalled a moderate expansion of overall construction output at the end of 2017.

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, said: “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.

“It appears that the continued fall in commercial activity was testament to Brexit-related uncertainty on the horizon and the sectorís 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.”

Blane Perrotton, managing director of the national property consultancy and surveyors Naismiths, said:”The loss of momentum in commercial property and infrastructure work dragged down both output and sentiment in the latter part of the year. But Britain’s housebuilders continue to buck the trend, posting a sixteenth straight rise in monthly output and injecting a defiant note into an industry which has been hit hard by rising material costs and had its confidence eroded by months of false dawns in Brexit negotiations.

“For all that there are some bright spots. Construction firmsí order books are far from empty, and on the front line we’re seeing consistent appetite among developers to convert office buildings into residential units under the extended and popular Permitted Development Rights.

“It’s too early for the Chancellorís housebuilding stimulus measures to have filtered through in a significant way, but consistent demand, both from developers and would-be homeowners, is ensuring the residential sector is continuing to function as it should.

“The picture is far less clear on the commercial property front though, with demand being squeezed as larger companies activate Brexit contingency plans and smaller firms mothball plans to scale up their premises.

“Few industries are more susceptible to shifts in investor confidence than construction, and if the coming months fail to deliver greater clarity on what the real impact of Brexit might be, we should expect the commercial sector to continue its stuttering progress.”

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