Construction growth reaches six-month high in January, PMI reveals

Industry confidence remains upbeat as business activity in the UK construction sector increased for the 12th consecutive month in January, according to the latest PMI® data compiled by IHS Markit and CIPS. 

There were also encouraging signs for the near-term outlook as new orders rose at the fastest pace since August 2021 and input buying was the strongest for six months.

The news comes as construction firms recorded the least widespread delays for almost one and a half years and, despite challenging transport, energy and material costs, the overall rate of inflation eased to its lowest for ten months.

Supplier lead times continued to lengthen in January as staff shortages and a lack of haulage availability hindered deliveries. However, the peak phase of supply chain difficulties appears to have passed as the latest downturn in vendor performance was the smallest since September 2020.

At 56.3 in January, up from 54.3 in December, the headline seasonally adjusted IHS Markit/CIPS UK Construction PMI® Total Activity Index registered above the crucial 50.0 no change mark for the twelfth month in a row. Moreover, the latest reading signalled the strongest rate of output expansion since July 2021.

Commercial work was by far the best-performing category (57.6), with growth accelerating to a six-month high amid a boost to client demand from recovering UK economic conditions. Survey respondents often noted that optimism about the roll back of pandemic restrictions had led to greater spending on commercial construction projects.

Civil engineering returned to growth in January (53.2), although the rebound was softer than seen in other parts of the construction sector. House building activity meanwhile increased at the slowest pace for four months (54.3).

January data illustrated a robust and accelerated rise in new work received by construction companies. The rate of growth was the fastest since August 2021, which survey respondents often attributed to rising confidence among clients. Strong pipelines of new work encouraged additional staff hiring in January. Latest data pointed to the best month for job creation since last October.

Finally, the latest survey indicated that construction companies remained highly upbeat about the business outlook. More than half of the survey panel (53%) forecast a rise in output during the year ahead, while only 5% predict a decline. Optimism was the strongest since May 2021 and largely reflected increasing tender opportunities and expectations of a swift recovery for the UK economy in 2022.

Stephen Marcos Jones, chief executive officer of the Association for Consultancy and Engineering, said: “Following a challenging end to 2021, it is pleasing to see a positive outlook for the industry at the start of a new calendar year with a strong pipeline of new projects coming through. Industry sentiment should be upbeat. We could see economic activity returning to a greater sense of normality in the months ahead and, after the intense disruption of the pandemic over the last two years, pent-up demand could also be released.

“Nevertheless, the impact of the pandemic may still be felt in 2022, compounded by new hurdles such as higher energy and transport costs, but there is still plenty of opportunity for the industry to seize as the year progresses.”

Tim Moore, director at IHS Markit, which compiles the survey, said: "UK construction companies started the year on a strong footing as business activity picked up speed and new orders expanded to the greatest extent since last August. Commercial construction activity benefited from fewer concerns about the Omicron variant and strong business optimism about recovery prospects over the course of 2022.”

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "Builders enjoyed their best month since July, bouncing back from December’s doldrums as opportunities unfurled in terms of new orders, job creation and optimism offering a strong start to 2022.”

Dave Sheridan, executive chairman at ilke Homes, said: "UK construction is keeping its good run of form going, with January’s PMI data revealing business activity increased for the twelfth consecutive month. In the context of Omicron-related delays, significant inflationary price rises, Brexit uncertainty, and staff shortages, the sector's performance is rather remarkable.”

Steve Plaskitt, partner at MHA, said: “The outlook for the UK construction sector remains positive, with plenty of work to go around and strong demand for new projects. The supply chain bottleneck has also eased for certain products (such as steel and timber) and unseasonal mild weather has boosted productivity on construction sites. Crucially the end of Covid-19 restrictions is further bolstering confidence.”

Jan Crosby, head of infrastructure, building and construction at KPMG UK, said: “The sector plays a vital role in supporting our economy, and it’s encouraging to see this positive start to the year. As the country emerges from the pandemic and many are facing cost of living increases, it’s essential that we continue to invest in sustainable infrastructure for the future to help drive economic growth.  As some pressures like supply chain delays slowly start to reduce and we enter the new, post-pandemic normal, this commitment points to a positive future for a sector that has weathered the storm well over the past two years.”

Mark Robinson, group chief executive at SCAPE, said: “Further accelerated growth suggests that the construction industry has overcome the worst of the winter trading period, after supply and labour shortages were exacerbated by Omicron. Those immediate Covid concerns are hopefully now receding, but contractors and project leads will continue to be wary of rising inflation. However, the industry has more than proven its ability to be resilient and reactive in the face of challenge over the last few years, and will continue to play a pivotal role in delivering on the government’s levelling up plans.”

Ian Cooper, director and head of construction sector at DWF, said: “As we start 2022, in hopefully a post-Covid world, this is great news for construction, representing a solid platform for growth.”

Max Jones, director in Lloyds Bank’s infrastructure and construction team, said: “The mood music among contractors is positive for the future. Growing optimism in the general economy is feeding through to confidence within the sector, giving builders the impetus to invest in talent, technology and more sustainable solutions.”

PMI data was collected between 12-28 January 2022.