Latest PMI figures show sharpest rise in construction output since December 2018

Industry leaders have welcomed the sharpest rise in construction output since December 2018, but have struck a cautionary tone due to the possible implications of last week’s Heathrow court ruling and the potential impact of coronavirus. 

The latest PMI figures show that UK construction companies signalled a return to business activity growth during February, following a nine-month period of declining workloads. 

The latest survey also showed that new orders increased at the fastest pace since December 2015, housing and commercial work underpinned the recovery, and that staffing levels were close to stabilisation in February.  

And, at 52.6 in February, up from 48.4 in January, the headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index registered above the 50.0 no-change value for the first time since April 2019. 

Moreover, the latest reading signalled that the overall rate of construction output growth was the fastest for 14 months.

Anecdotal evidence mainly linked the recovery to a post-election improvement in business confidence and pent-up demand for new projects.

Residential activity remained the best-performing construction category. Latest data signalled the strongest expansion of house building activity since July 2018. Commercial work also returned to growth in February, with the sub-sector posting its fastest increase in business activity since November 2018. 

In contrast to the overall trend for construction output, civil engineering activity fell again during February. However, the rate of decline was only marginal and the least marked for 13 months.

Survey respondents widely commented on greater tender opportunities and the release of spending that had been delayed in the run up to Brexit. There were also reports citing a boost from increased infrastructure contract awards, including those related to HS2.

Tim Moore, economics director at IHS Markit, which compiles the survey, said: “Growth of business activity was stronger than at any time since the end of 2018, supported by the fastest rise in new orders for just over four years. While construction order books have begun to recover in the opening part of 2020, the fly in the ointment is the uncertain impact of the coronavirus outbreak on UK economic growth prospects. A renewed slowdown could see domestic investment spending put back on hold and dampen the outlook for the UK construction sector."

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: “After a sustained period of contraction in construction last year, the resurgence in levels of new work at the fastest rate since December 2015 was a surprising but much-needed development for a sector that was on its knees. Given the slowdown in the global economy and potential coronavirus impacts, the sector could struggle to maintain February’s strong performance and may experience slower progress as we head into spring."

Hannah Vickers, chief executive of the Association for Consultancy and Engineering (ACE), said: “After months of underwhelming news, these new figures will be welcomed by many as signs of a more positive outlook for the industry. However, difficulties remain and anecdotal evidence from many of our members is that much public sector work is slow to come to market.

“Looking ahead, a note of caution must now also be shared around the future outlook thanks to the delay to Heathrow’s expansion and legal action on HS2. Uncertainty on these major projects could, in a worst case scenario, be compounded by a lasting negative macro-economic impact owing to the coronavirus.”

Jan Crosby, UK head of infrastructure, building and construction at KPMG, said: “The sharp rise in construction output provides us with tentative signs that the sector is coming back to life with an uptick in activity for the second month running. Of course, the huge caveat in all this is coronavirus. This could incite a short-term dip in activity, which will make it all the more important to have medium-term clarity on the growth agenda, particularly if the sector suffers wider systemic issues as a result of self-isolation. It’s impossible to estimate the scale of the impact should the virus take a firm hold in the UK, but clearly it has the potential to deal a serious blow to a sector that has in recent years flirted with recession.”

Mark Robinson, Scape Group chief executive, said: “Green shoots of optimism are continuing to appear as construction businesses and clients regain their confidence to kickstart new projects, backed by a majority government with a clear mandate to deliver on Brexit negotiations. With the Brexit and Whitehall infighting finally out the way, the industry now faces new challenges. The coronavirus outbreak has already impacted the UK’s growth prospects for the coming months, which is affecting business decisions across all industries. Additionally, the proposed points-based immigration system is biased against lower-skilled workers, which will have a profound impact on the number of skilled construction workers entering the UK.”