December data signalled a solid rise in UK construction sector output, extending the period of sustained expansion to 12 months. Growth of activity was supported by an increase in new business, which in turn led to a further rise in employment. However, confidence over future business prospects remained relatively muted.
The seasonally adjusted Markit/CIPS Construction Purchasing Managers’ Index (PMI) posted 53.2 in December, up from 52.3 in November. The latest reading signalled growth of UK construction sector activity that was slightly stronger than in the previous survey period. Nonetheless, the latest increase in output remained below the series average.
For the first time in nine months, all three broad construction categories monitored registered rises in activity. The fastest growth was in civil engineering, where trends in output have been relatively volatile over recent months. Residential construction increased for a second month running, while the expansion in commercial activity eased to the slowest since December 2010.
For the first time in nine months, all three broad construction categories monitored registered rises in activity. The fastest growth was in civil engineering, where trends in output have been relatively volatile over recent months. Residential construction increased for a second month running, while the expansion in commercial activity eased to the slowest since December 2010.
New business received by UK construction companies increased for a third consecutive month in December, reflecting a general rise in tender opportunities and successful bids. While growth of new business was robust, it eased slightly on the month.
December data signalled a modest rise in UK construction sector employment. Panellists cited higher new orders and output as the main contributors to the increase in staffing levels. However, use of subcontractors declined again.
UK construction companies reported a further increase in purchasing activity in December, extending the period of sustained growth to one year. The rise in input buying was solid, but slightly weaker than in November. Suppliers’ delivery times lengthened again and at a marked rate. Anecdotal evidence suggested that this reflected shortages of stocks at vendors, alongside the rise in purchase volumes.
Input prices faced by construction companies in the UK continued to rise substantially during December, driven by higher raw material and energy costs. While the rate of input price inflation was at a three-month low, it remained elevated in the context of historical data.
UK construction companies were optimistic in December that activity would increase over the next year. However, the degree of positive sentiment remained relatively subdued, as concerns over future market conditions and low client confidence weighed on optimism. 
Markit economist Sarah Bingham, author of the UK Construction PMI, said: “PMI data signalled a positive end to 2011 for the UK construction sector, with output rising again on the back of another increase in new business. The survey suggests that the sector should make a positive contribution to the economy in the final quarter of the year, helping avoid a possible slide back into contraction. The data so far suggest that gross domestic product probably stagnated in the final three months of the year. However, UK Service PMI data released tomorrow will allow for a more accurate estimate of overall GDP.
“House building, commercial construction and civil engineering all saw higher activity in December. However, the sustainability of the overall rise in output remains uncertain, with confidence about the year ahead still relatively subdued. Optimism continues to be hindered by concerns regarding low client confidence and worries over wider economic and market conditions.” 
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