Construction picks up pace in February as orders slow

L Markit/cips report sees activity edge up last month l Building firms express optimism

Construction output rose modestly in February, as civil engineering growth helped offset a slowdown in housebuilding.

The closely watched Markit/ CIPS UK Construction purchasing managers’ index (PMI) rose to 52.5 last month, up from 52.2 in January and above economists’ expectations of 52.0. A reading above 50 indicates growth.

Civil engineering overtook housebuilding as the main growth driver, as residential construction rose at its slowest pace in six months. Commercial building – offices and factories – declined for the first time since October.

While the index held above 50 for the sixth consecutive month, the rate of output growth was weaker than its post-referendum peak of 54.2 in December and was “subdued” compared to the past three-and-a-half years, the report said.

Some firms said demand had “softened” since the start of the new year. Tim Moore, a senior economist at IHS Markit, said: “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.”

He said that suppliers had tried to pass on rising energy costs, with global commodity prices exacerbating the impact of the weakness of sterling since the Brexit vote.

Firms said they experienced the second-fastest rise in input costs since August 2008. But they were still relatively optimistic, with 48 per cent forecasting a rise in business activity over the next 12 months, compared to 13 per cent expecting a decline.

Most construction businesses expect strong demand for house building projects to help boost construction output in the coming months.

Industry confidence helped sustain hiring across the sector, with sub-contractor demand picking up last month, but that demand is raising concerns about the UK’S labour pool.

Duncan Brock, the director of customer relations at the Chartered Institute of Procurement and Supply (Cips), said: “The drop in sub-contractor availability was the largest seen since January 2016, against a backdrop of rising employment numbers across the construction sector, which will add to worries around labour market capacity as we move along the path to Brexit.” Merlin Entertainments, which is behind attractions including Alton Towers, the London Eye and Madame Tussauds, said 2016 profits were boosted by the falling value of the pound in the wake of the Brexit vote. Pre-tax profits rose 3.4 per cent to £259 million while revenue was up 11.7 per cent to £1.4 billion. It said: “In the medium term we expect a more competitive pound to help inbound tourism to London recover and drive more ‘staycations’ from UK residents.”