- November’s construction PMI of 55.5, the strongest in four months, joined its services and manufacturing counterparts in indicating a pick-up in activity growth in the early part of Q4. In contrast to continued strong upward pressures on costs and prices observed in other parts of the economy, inflation in the construction sector fell back.
- Evidence of ‘growthflation’ across most of the economy would make an interest rate rise in December’s MPC meeting highly likely, under normal circumstances. But the uncertainty generated by the Omicron COVID-19 variant means the EY ITEM Club continues to think that it will be next year before rates start to head up.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“November’s construction PMI joined its services and manufacturing counterparts in suggesting that UK activity picked up pace in the early part of the fourth quarter. A rise in the construction PMI to 55.5 in November from October’s 54.6 left the index at a four-month high. Positively, the IHS Markit/CIPS survey suggested supplier delays had started to ease, albeit still remaining high by historical standards. And although cost pressures remained elevated, the survey’s measure of cost inflation was the lowest for seven months.
“However, in common with the surveys for the services and manufacturing surveys, November’s construction survey relates almost entirely to the period before news of the Omicron variant emerged. Uncertainty over the health consequences of the new variant and how policymakers and consumers might react has clouded the outlook for the construction sector and wider economy. Although new pandemic restrictions are relatively light touch in comparison with those in the past, the requirement for close contacts of those testing positive for Omicron to isolate raises the risk of a repeat of the disruption seen during the summer. The extent to which consumers and firms will choose to be more cautious in response to the new variant is a big unknown.
“Evidence of strong growth in November’s PMIs, alongside other indicators, such as last month’s surprise rise in retail sales, combined with still-elevated inflationary pressure in services and manufacturing, would normally have made an interest rate rise in December’s MPC meeting a near-certainty. But with the pandemic continuing to disrupt the recovery and inject uncertainty into the outlook, the EY ITEM Club continues to think the MPC will wait until next year before raising rates.”