Post-Brexit construction output surges despite 'intense pressure' from devalued pound

Input costs rose at their fastest since April 2011, as rising imported raw material prices were passed down from suppli

Ben Woods
Wednesday 04 January 2017 16:25 GMT
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House building led the increase in activity
House building led the increase in activity

The UK construction industry saw orders grow at their fastest pace in almost a year during December, but firms are still grappling with "intense cost pressures" caused by the Brexit-hit pound.

The positive news from the Markit/CIPS survey, comes one day after manufacturers also signalled that activity was surging.

UK Construction purchasing managers' index (PMI) rose to 54.2 last month, up from 52.8 in November and well above economists' expectations of 52.6.

A reading above 50 indicates growth.

The better-than-expected performance was driven by improved order books and a rebound in business conditions, with new order growth hitting an 11-month high.

However, input costs rose at their fastest since April 2011, as rising imported raw material prices - driven by sterling's slump since the Brexit vote - were passed down from suppliers.

It comes after separate PMI figures on Tuesday showed manufacturing output unexpectedly leap to a two-and-a-half-year high in December thanks to an exports boost from the plunging pound.

Tim Moore, senior economist at IHS Markit, said the PMI data showed the construction industry delivered a "solid rebound" in the final quarter of last year.

"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.

"Housebuilding 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."

The PMI report said housebuilding was the best performing area of the industry, with housing activity delivering its fastest expansion since January.

Rising workloads also bumped up employment levels, as recruitment grew at its quickest rate since May but remained "much weaker" than the average.

Nearly half - 48 per cent - of the firms surveyed for the report expect business activity to step up over the next year, with business confidence hitting a three-month high.

Howard Archer, chief UK and European economist at IHS Global Insight, said the PMI report boosted hopes for a robust performance from the UK economy in the fourth quarter.

"The improved December construction purchasing managers' survey follows on from the manufacturing survey showing activity picking up to a 30-month high in December.

"This buoys hopes that the UK economy continued to hold up pretty well in the fourth quarter of 2016 after resilient expansion of 0.6 per cent quarter-on-quarter in the third quarter following June's Brexit vote.

"A healthy December purchasing managers' survey for the dominant services sector would be particularly reassuring."

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