U.K Construction PMI Expands In November

The U.K construction sector expanded further in November with business activity and new orders increasing at the strongest pace in eight months. The construction PMI has widely shown the similar behaviour as the manufacturing and services PMIs. It had declined sharply in July and then recovered quite strongly. However, the recovery was more muted than in the manufacturing and services sector.

The Markit/CIPS purchasing managers’ index rose to 52.8 in November from 52.6 in October, beating forecasts for a reading of 52.2. A level above 50 signals an expansion in sector activity while a figure below that indicates a contraction.

However, average cost burdens rose sharply with the rate of inflation the steepest since April 2011. Stronger inflation, driven by rising imported raw material prices, led to intense competitive margins and squeezed margins.

Housebuilding activity remained the best performing category of construction output during November, despite the pace of expansion slipping to a three-month low. Construction firms meanwhile reported a marginal rebound in commercial activity, which ended a five-month period of decline. Civil engineering work remained the weakest area of activity. Increased volumes of construction output were underpinned by a solid upturn in new work during November.

The latest rise in incoming new business was the strongest since March and contrasted with a sustained decline in sales through the summer. Some construction firms noted that their workloads had been boosted by a resumption of projects that were delayed after the Brexit vote.

UK construction companies reported a steep and accelerated rise in their cost burdens in November, with the rate of inflation the fastest for just over five-and-a-half years.

Purchasing activity meanwhile increased at the fastest pace since the start of 2016. Stronger demand for inputs and low stocks among vendors resulted in the sharpest deterioration in supplier performance since June.

Job creation was maintained across the construction sector in November, while the latest survey also highlighted the fastest rise in subcontractor usage so far in 2016.

Business confidence was still softer than seen during the first half of the year, with construction companies generally noting that Brexit-related uncertainty had the potential to weigh on business activity during 2017.

Tim Moore, Senior Economist at IHS Markit and author of the Markit/CIPS Construction PMI, said: “UK construction companies experienced a steady recovery in business activity during November, which continues the rebound from the downturn seen over the third quarter of 2016. The brighter picture reflected another solid contribution from residential building and renewed growth in commercial work, which some companies linked to a resumption of projects that had been delayed after the Brexit vote”.