The seasonally adjusted Markit/CIPS UK Construction Purchasing Managers' Index rose to 53.7 in January. A reading above 50 indicates growth. In December the index was 49.1, with heavy snow being blamed for the lack of orders.
For the first time since August 2010, all of the three broad UK construction sub-sectors recorded an increase of activity. Civil engineering was the strongest performing category, having seen a slight reduction in activity during December. Commercial construction activity extended its sequence of growth to eleven months. There was a slight increase of housebuilding in January to end a four-month period of contraction.
The Purchasing Managers' Survey is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 170 construction companies. It is conducted in conjunction with the Chartered Institute of Purchasing & Supply (CIPS).
Companies reported that January’s improvement in part reflected a rebound from harsh weather in December, which had contributed to the first fall in activity since February 2010. Looking at the trend in the data over the past two months as a whole, the picture is one of very modest growth, well below the strong pace seen in the first half of last year.
Incoming new business received by UK construction companies increased modestly during January. Panellists commented that increased tender opportunities and contract wins boosted new order volumes. Growth was in part aided by better weather conditions.
In contrast to the rebounds in activity and incoming new business, January data signalled a further reduction in the construction sector workforce. This was the seventh successive month where job cuts have been indicated, although the latest reduction in staffing levels was the smallest for five months.
Subcontractor usage also declined over the month, falling at the sharpest rate since October 2009. Rates charged by sub-contractors likewise fell, dropping for the twenty-ninth successive month as firms competed on price for new business.
Input costs faced by construction companies in the UK rose at the fastest rate since May 2010, driven up by higher raw material prices. However, the rate of increase remained well below that seen prior to the onset of the financial crisis in early 2008.
Optimism regarding companies’ activity levels in twelve months time rose to an eight month high, and has improved substantially since hitting a low last September. The overall level of optimism nevertheless regained only half of the ground lost compared to the long-run average recorded prior to the financial crisis. Ongoing improvements in general economic conditions and a focus on marketing are expected to boost activity. However, some concerns remained over cuts in public spending.
Markit chief economist Chris Williamson said: “The UK construction sector showed a welcome bounce-back from the snow-related drop in activity late last year. However, after estimating for the boost to activity in January resulting from the disruption to workflows in December, the underlying growth trend remains only very modest and well below the surging pace seen in the second quarter of last year.
“Looking at the trend in recent months, the housing market seems to be a particular area of weakness, with house building stagnating at best. Civil engineering has seen only very modest growth, leaving commercial activity as the only sector recording any noteworthy expansion, albeit well below that seen last spring.
“The outlook appears to be one of nervous optimism. Confidence over future business prospects was at its strongest in eight months, but this still remained relatively subdued compared to the long-run average. This nervousness about future prospects was highlighted by a disappointing further reduction in employment.”
CIPS chief executive David Noble said: “Despite the growth of activity, an air of caution persists amongst construction companies as employment levels continue to fall. Some companies that are doing well are hiring but many more companies are continuing to adjust to lower workloads and deferral of projects. Until growth becomes sustained it is unlikely we will see employment levels rise substantially and consistently.
“At the moment it is hard to tell what 2011 holds for the sector, even though confidence about future activity has risen, it is still weak and many are pinning their hopes on general economic improvements to make that confidence a reality. Furthermore, the rise in raw material prices as well as the latest VAT hike will add to the worries for the sector. Bearing this in mind we may be looking at another disappointing year with continued uncertainty where hopes are dashed.”
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