Construction industry enjoys surprise growth spurt in December

Experts predict further boost from spending to shore up flood defences

Britain’s builders enjoyed a surprise growth spurt at the end of 2015, with a further boost to come from spending to shore up flood defences, experts have predicted.

Construction activity, as measured by the Markit/Cips UK Construction Purchasing Managers’ Index, recovered from a seven-month low of 55.3 in November to 57.8 in December, which was much stronger than expected. A score above 50 signals growth.

The Chartered Institute of Procurement and Supply (Cips) said the recovery was driven by commercial projects and housing work, although civil engineering activity fell back after seven successive months of growth.

David Cameron, who faced criticism for Tory cuts to flood defence budgets, has announced £40m of funding for improvements after gales and torrential rain caused billions of pounds of damage over the festive period.

Although critics immediately said the amount of extra cash on offer was inadequate, Tim Moore, an economist at Markit, said that, based on previous flooding episodes, civil engineers should benefit.

He added: “Civil engineering activity looks set to experience a near-term spike at the turn of 2016 from spending related to flood relief and additional capital budgets. In the immediate aftermath of the winter 2013-14 floods, UK civil engineering activity picked up at a survey-record pace.”

The revival in construction was more encouraging than the Cips’s monthly manufacturing index, which showed waning momentum in the sector. Although construction accounts for a relatively small share of the economy – about 6 per cent of overall GDP – builders saw a “robust and accelerated increase” in new business, which firms linked to higher demand and more willingness among clients to commit to new projects. Near-zero inflation has also driven down raw materials costs.

Kallum Pickering, a UK economist at Berenberg Bank, said: “Given the pace of domestic demand growth, construction should be showing strength, not weakness.

“Today’s data for December could be an early indication that the sector is turning a corner.”

Inflation setback: ECB under pressure

Mario Draghi, the head of the European Central Bank, has come under pressure to offer more monetary stimulus as figures showed eurozone inflation staying close to zero.

Consumer prices were again weighed down in December by falling energy costs, rising by just 0.2 per cent against expectations of a 0.3 per cent increase. Stripping out volatile energy and food costs, underlying inflation slowed to 0.8 per cent. Last month, Mr Draghi disappointed markets by failing to increase quantitative easing beyond the €60bn (£44bn) a month being pumped in by the ECB.

The euro sank as markets anticipated further action following Tuesday’s figures.