UK construction activity up for 10th consecutive month, but weather slows growth

Out-Law News | 06 Mar 2014 | 10:22 am | 2 min. read

Civil engineering has overtaken housing as the biggest driver of growth in the UK construction market, as adverse weather prevented work on new housing developments but led to more flood defence work, according to a leading market survey.

The Markit and Chartered Institute of Purchasing and Supply's Construction Purchasing Managers' Index (PMI) (3-page / 320KB PDF) recorded a 10th consecutive month of growth and three-month job creation high in February. Output reached 62.6 in February, slightly down from January's six-year high of 64.6 but well above the figure of 50.0 that signifies growth, according to the report.

Infrastructure law expert Richard Laudy of Pinsent Masons, the law firm behind Out-Law.com, said that the monthly survey was beginning to show growth "sustained over a number of months".

"However, for growth to be sustained, there are going to have to be some tough choices made about how to fund major infrastructure projects," he said.

"Given the low base from which we are starting, it was always to be expected that the rate of growth would slow. This is especially the case given the appalling weather which would have had a significant effect on performance, coupled with rising supply chain prices. We also saw a dramatic reduction in the skill set in the construction sector during the bad times, with huge job losses and skilled workers leaving the sector. It will take time to build that back up and there are some capacity issues at the moment," he said.

PMI data is collected via a monthly survey of more than 170 purchasing executives working within the construction sector, based in businesses of all sizes. Markit and the CIPS measure changes in activity in the sector in relation to output, orders, staffing levels and market optimism.

Residential construction has driven much of the growth in the construction market since the economic downturn and it continued to rise sharply in February, but at the slowest rate for four months, according to the survey. By contrast, civil engineering grew at the fastest pace since the survey began in 1997 to become the best performing area of construction, due to "greater spending among local authorities on capital projects and maintenance" particularly in relation to the recent flooding, according to survey respondents.

Almost 60% of survey respondents now expect a rise in output over the year ahead, compared to the 10% that forecast a reduction in activity. The report cited anecdotal evidence of improving economic conditions and greater invitations to tender as a reason for this. However supply chain costs and order lead times are continuing to rise due to strong demand from contractors, according to the data.

"Strong demand is continuing to put pressure at a supplier level, with vendors battling with low stocks and prices increasing as a result," said CIPS chief executive officer David Noble. "While delivery times are still deteriorating, they are at least doing so at the slowest rate since August 2013, suggesting that the very worst of the squeeze has passed."

"Bad weather took a bite out of progress in house building, but UK construction remains on a strong growth trajectory in February. The sector was fuelled by the strongest rise in civil engineering activity in the survey's history, as an increase in spending was recorded on investment and infrastructure projects in response to recent flooding. Even though both housing and commercial activity suffered a slide in pace of growth in February, the overall performance was one of continued expansion," he said.