- A markedly better-than-expected survey points to the construction sector returning to growth and looking set for further expansion. The underlying improvement is better than indicated by the survey as reports indicated that the bad weather had stifled growth
- The February survey indicates that the construction sector is benefiting from increased willingness by some companies to commit to new projects amid increased certainty, following December’s election result and fewer Brexit uncertainties. There were also reports of increased infrastructure contracts being awarded.
- The releasing of ‘pent-up’ demand was reported to have particularly boosted the house-building and commercial sectors
- The purchasing mangers’ report showed construction activity growing for the first time since last April, at the fastest rate for 14 months. It also showed that new business growth was the strongest in just over four years.
- Housing market activity grew at the strongest rate since July 2018 while commercial activity expanded for the first time since December 2018 - a 15-month high. Civil engineering continued to contract, however, the decline was marginal, and the smallest seen for 13 months.
- Construction companies will be hoping that business confidence around major commercial and residential projects continues to rise over the coming months and is not undermined by the coronavirus outbreak.
- Construction companies will also be hoping that improvements in housing market activity since December’s election will be sustained and will be looking to the Budget to deliver measures aimed at boosting the housing market, supporting house building activity and investment in infrastructure.
- With the manufacturing and ‘flash’ services surveys also showing activity in February expanding at the equal fastest rate for 17 months, today’s improved construction PMI adds to the impression that reduced uncertainties have given the economy a significant lift in the first quarter.
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“The purchasing managers survey highlighted that the construction sector grew for the first time since last April and at the fastest rate for 14 months.
“Specifically, the construction PMI climbed to 52.6 in February from 48.4 in January and 44.4 in December. It had been as low as 43.3 in September - which had only been fractionally above the more than 10-year low of 43.1 in June 2019.
“February’s reading took the construction sector’s PMI above the 50.0 level which indicates flat activity. However, it was still below the index’s lifetime (1997-2019) average of 54.1.
“Furthermore, February’s improvement was seemingly better than indicated by the headline PMI figure as the report also observed that “severe weather conditions had led to delays on site and acted as a brake on growth.”
“All sectors saw improved performances in February. The best-performing was the housebuilding sector where activity expanded at the fastest rate since July 2018, following eight months of contraction.
“Commercial activity grew for the first time since December 2018 and at the fastest rate for 15 months. It was observed that reduced domestic political uncertainty had the potential to unlock new projects, boosting spending.
“Civil engineering remained the weakest performing sector, continuing to contract. However, the rate of decline was marginal and the smallest in 13 months.
New Orders grew at fastest rate in over four years
“One particularly encouraging development was that new orders grew at the fastest rate in more than four years in February. The survey observed ‘anecdotal evidence mainly linked the recovery to a post-election improvement in business confidence and pent-up demand for new projects.’ Greater tender opportunities were reported and there were also reports of a boost from increased infrastructure contracts.
“Confidence among construction companies was at a healthy level in February, although it eased back from January – the highest level since April 2018
“Employment in the sector stabilised but input prices rose at a slower rate.”
Construction output grew 0.5% in fourth quarter of 2019
“Latest ONS data shows that construction output grew 0.5% quarter-on-quarter and 2.5% year-on-year in the fourth quarter of 2019. This included month-on-month growth of 0.4% in December.
“This growth follows construction output of 1.1% quarter-on-quarter in the third quarter, a contraction of 0.9% quarter-on-quarter in the second quarter and growth of 1.8% quarter-on-quarter in the first quarter. Consequently, construction output rose 2.5% over 2019.”