UK construction market bounced back in December, survey finds

UK construction companies recorded the fastest rise in new order volumes for 11 months in December 2016, according to the latest Markit/CIPS UK ConstructionPurchasing Managers' Index.

Nearly half of survey respondents predict a rise in orders this year
Nearly half of survey respondents predict a rise in orders this year

Stronger demand patterns resulted in sustained job creation and a broad-based upturn in business activity during December.

However, the construction sector continued to experience what the Chartered Institute of Procurement and Supply (CIPS) called "intense cost pressures" due to the higher cost of imported raw material prices. The latest rise in overall input costs was the steepest for more than five years.

It said that 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, with work on civil engineering projects also picking up. However commercial construction increased only marginally.

Reports from survey respondents cited rising client demand and a resilient economic backdrop, which has led to more staff recruitment across the construction sector. December saw the fastest rise in employment since May, but was still much weaker than seen on average since the jobs rebound began in mid-2013, CIPS said.

December data indicated that exchange rate depreciation continued to drive up input prices across the UK construction sector. The latest increase in average cost burdens was the fastest since April 2011. At the same time, supplier lead times continued to lengthen, with the latest survey pointing to the most marked deterioration in vendor performance since June 2015. Some construction firms noted that forward purchasing had resulted in low stocks among suppliers.

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.

CIPS chief executive David Noble said: "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.

"Prices continued on their upward inflationary trajectory, at the strongest rate for five and a half years. In response, firms have increased their stock buying to not only fulfil new orders, but also to counteract anticipated price increases throughout the year, as inflationary pressures are set to continue and the weakness of the pound persists. Stock levels at suppliers were also under pressure, as vendor performance deteriorated to the greatest extent since June 2015.

"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."

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