UK construction sector remains undaunted, with confidence high -UPDATE

Date: Thursday 02 Feb 2012

-Weaker activity led by a slowdown in new order growth.
-Two of the three broad sub-sectors post decline in output.
-Employment stagnated in January.
-Confidence strengthened markedly to reach an eight-month high.


The Markit/CIPS purchasing managers’ index for the construction sector in the month of January retreated to 51.4 points from 53.2 the month before.

The consensus estimate was for a reading of 52.7.

While production levels fell in two out of three sub-sectors (housing and civil engineering) and growth in new business eased to its weakest in the current four-month period of increase, construction sector companies are optimistic regarding the future.

Thus, purchasing managers’ hopes for production in the coming year reached their second strongest level in the survey’s history, rising back up to their May 2011 highs. Part of that now greater confidence was attributed to a slower rate of increases in input costs, although they again rose markedly.

For Sarah Bingham, economist at Markit, “2012 started positively for the UK construction sector, with further output growth recorded. However, at a four-month low, the expansion was modest, reflecting a weaker rise in the volume of new business received compared with December.

“(…) On a more positive note, construction firms grew more upbeat about their prospects for 2012, with business confidence showing the second-greatest monthly jump in the survey’s history. This suggests that growth may pick up again in the sector in coming months and, on top of the surprisingly strong start to 2012 reported by the sister survey of manufacturing, will raise hopes that a slide back into recession may yet be avoided.”

Meanwhile, economists at Barclays Capital are commenting that, “although construction accounts for only 8% of the economy, its cyclical contribution tends to be greater than its small weight would imply. We expect the sector to grow by 0.6% q/q in Q1, unwinding the 0.5% decline seen in Q4 11, with growth gradually picking up during 2012.

“The read-across from the PMI to the official data can be rather limited. For instance, the PMI data have pointed consistently to a stronger position than the official data in recent months. The larger-than-expected decline in the January PMI may then imply some modest downside risks to our forecast for Q1 output, although the robust improvement in business expectations points to an improving outlook in line with our forecast for the rest of 2012.”

AB

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