UK construction PMI unexpectedly rises in November
The UK construction sector expanded further in November with business activity and new orders increasing at the strongest pace in eight months.
The Markit/CIPS purchasing managers’ index rose to 52.8 in November from 52.6 in October, beating forecasts for a reading of 52.2. A level above 50 signals an expansion in sector activity while a figure below that indicates a contraction.
However, average cost burdens rose sharply with the rate of inflation the steepest since April 2011. Stronger inflation, driven by rising imported raw material prices, led to intense competitive margins and squeezed margins.
“The impact of the weaker pound was widely felt in November, with cost inflation the strongest since early-2011,” said David Noble, chief executive at CIPS.
“Higher prices were reported for a number of materials including bricks, blocks and slate, as businesses struggled with managing costs. Yet, in spite of this grip on precious margins, headcounts were increased and demand for subcontractors was also sustained.”
Uncertainty surrounding Brexit negotiations meant business optimism was at the lowest point since the middle of 2013 with just 45% of respondents expecting a rise in activity next year.
The sector is also worried about more inflationary impacts next year and will be looking to policymakers to ensure these effects are minimised, Noble concluded.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "The modestly improved November construction purchasing managers’ survey follows on from the manufacturing survey showing activity at a decent level (although down further from the 27-month high seen in September).
"This buoys hopes that the UK economy is continuing to hold up pretty well in the fourth quarter fourth quarter after resilient expansion of 0.5% quarter-on-quarter in the third quarter following June’s Brexit vote."
IHS expects gross domestic product growth of 0.4% quarter-on-quarter in the fourth quarter. Archer said there is a possibility GDP could hold up at 0.5% quarter-on-quarter, especially given the current strength of retail sales.
"The construction sector will have taken some heart from Chancellor Phillip Hammond prioritising infrastructure and housing initiatives in November’s Autumn Statement on 23 November," Archer added.
Hammond's initiatives included £2.3bn for a new Housing Infrastructure Fund which will be used to support the infrastructure needed to support the building of up to 100,000 new homes. A further £1.4bn was allocated to build 40,000 new affordable homes and an additional £1.7bn was provided to speed up the construction of new homes on public sector land. The government has also devoted £1.3bn to improving and upgrading roads.