Slow Growth for Construction and Cost Pressures at 8 Year High

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Slow Growth for Construction and Cost Pressures at 8 Year High
UK construction companies recorded a sustained expansion of overall business activity in February, with civil engineering replacing house building as the main growth driver. Residential activity increased at the slowest pace for six months, while commercial building declined for the first time since October 2016. 
The latest survey revealed a further solid expansion of employment numbers, despite a slowdown in new business growth to its weakest for four months. Meanwhile, intense cost inflation persisted in February, which was overwhelmingly linked to higher prices for imported materials, according to the latest Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®). 
Subdued Growth
At 52.5 in February, up slightly from 52.2 in January, the seasonally index registered above the neutral 50.0 threshold for the sixth consecutive month. However, the rate of output growth remained weaker than its post - referendum peak (54.2 in December 2016) and subdued in comparison to the trends seen over the past three-and-a-half years. 
Survey respondents noted that the resilient economic backdrop and a stabilisation in client confidence since the EU referendum continued to help drive construction growth in February. However, there were also reports that demand growth had softened so far in 2017. Reflecting this, incoming new work increased only marginally and at the slowest pace since last October.
Some construction companies noted that sharply rising input costs had an adverse impact on decision-making and contributed to delays in contract completions. 
Growth Prospects
February data indicated that construction companies remain upbeat about their growth prospects for the next 12 months, with almost half (48%) forecasting a rise in business activity and only 13% expecting a decline.
The degree of positive sentiment was stronger than seen on average in the second half of  2016, but weaker than January’s 13-month peak. Strong demand for house building projects was cited as a key factor likely to boost construction output. 
Sub-contractor Demand
Robust business confidence contributed to sustained staff hiring across the construction sector in February. Sub-contractor demand also picked up during the latest survey period, which contributed the sharpest drop in sub-contractor availability since January 2016. 
Input buying increased again in February, although the rate of expansion was only marginal. Greater pressure on supplier capacity led to the sharpest deterioration in vendor performance since June 2015. Construction companies also reported the second-fastest rise in input costs since August 2008. Survey respondents noted higher prices for a range of materials, driven by the weak sterling exchange rate against the U.S. dollar and euro. 
Tim Moore, Senior Economist at IHS Markit and author of the Markit/CIPS Construction PMI®, said: “February’s survey data highlights that the UK construction sector has rebounded from its post - referendum soft patch but remains on a relatively slow growth trajectory. Weaker momentum in the house building sector was a key factor weighing on construction growth, alongside a renewed fall in work commercial projects. 
“There was little sign that the UK storms had a material impact on construction growth in February, although some firms noted that longer delivery times for roof tiles had added to supply chain issues. Instead, survey respondents mainly cited an underlying slowdown in sales growth, with the latest rise in new work the weakest for four months. In some cases, construction companies reported that sharply rising input prices had a disruptive impact on contract negotiations. 
“February data revealed that input cost inflation remained at levels last seen in the summer of 2008. Suppliers’ efforts to pass on rising energy costs and global commodity prices have been amplified by the weak sterling exchange rate.” 


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