Construction output rises at fastest pace since March

Robust and accelerated upturn in new work sees order growth hit 11-month high in December

UK construction companies signalled a positive end to the year, led by the fastest rise in new order volumes since January 2016, with stronger demand patterns resulting in a broad-based upturn in business activity during December.

At 54.2 in December, up from 52.8 in November, the latest seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) signalled a robust and accelerated expansion of overall construction output.

The headline index has now posted above the 50.0 no-change mark for four months running, and the latest reading signalled the fastest pace of expansion since March 2016.

Anecdotal evidence suggested that improving order books and a general rebound in business conditions had helped to lift construction output in December.

Residential building activity remained the best performing sub-category at the end of 2016. Moreover, the latest expansion of housing activity was the fastest since January.

Work on civil engineering projects also picked up at a robust pace in December, while commercial construction increased only marginally.

New business volumes expanded at the strongest rate for 11 months in December, which marked a sustained recovery from the soft patch seen in mid-2016. Reports from survey respondents cited rising client demand and a resilient economic backdrop.

Meanwhile, construction companies reported a reasonably upbeat assessment for their growth prospects in 2017. Around half of the survey panel (48%) anticipate a rise in business activity during the next 12 months, while only 13% forecast a reduction.

The degree of business confidence edged up to a three-month high during December, with a number of construction firms citing optimism that strong order books would help alleviate Brexit-related turbulence in 2017.

Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS Construction PMI, said: ‘December’s survey data confirmed a solid rebound in UK construction output during the final quarter of 2016.

‘All three main areas of construction activity have started to recover from last summer’s soft patch, but in each case growth remains much weaker than the cyclical peaks seen in 2014.

‘House building remains a key engine of growth for the construction sector, with the latest upturn the fastest for almost one year.

‘Meanwhile commercial activity was the weakest performing category in December, reflecting an ongoing drag from subdued investment spending and heightened economic uncertainty.’

David Noble, group chief executive officer of the Chartered Institute of Procurement & Supply, said: ‘The residential sector raced ahead this month, with the fastest pace of growth since January 2016.

‘Strong pipelines of new work were reported across all sub-sectors, and construction firms showed improved confidence after the impacts of uncertainty around the EU referendum.

‘In the short term at least, the sector looks set to enjoy these improved demand conditions for the coming months, which is positive news after many months of instability.’