Construction enjoys busier January but caution reigns

Construction enjoys busier January but caution reigns

Britain's builders enjoyed a rebound in business growth last month but have gone into the new year in a cautious mood amid signs of an economic slowdown.

After expansion in the construction sector hit a 17-month low in December, it enjoyed faster growth in January in all three areas – homebuilding, civil engineering and commercial construction – according to the latest Markit/CIPS UK Construction PMI survey.

But the report showed that growth was less strong than the average for last year and hiring slowed to its weakest pace for more than a year as worries about the outlook intensified.

Construction firms also reported continuing challenges in getting the materials they need as suppliers adjust to a revival in demand since the industry's sharp recession. Skilled workers were also hard to come by, sending subcontractor charges rising at a near record pace, the survey said.

The poll's main activity index rose to 59.1, from 57.6 in December, defying expectations for a drop to 57.0 in a Reuters poll of economists.

"UK construction companies have found their feet again after a protracted slowdown in output growth at the end of 2014," said Tim Moore, senior economist at Markit and the report's author.

"Stronger trends were recorded across housing, commercial and civil engineering, although each category of activity still experienced much slower growth than the high-water marks achieved last year. In short, the peak speed of the construction recovery seems to be over, but reports of its death have been greatly exaggerated."

Almost half of those surveyed forecast a rise in business activity over the next 12 months, while fewer than one in 10 expect a drop. But the report, based on questionnaires sent to purchasing executives in more than 170 construction companies, highlighted a mood of caution seen in several other recent business surveys.

"The degree of business optimism was the second-lowest since October 2013, with some firms citing heightened uncertainty about the overall economic outlook."

The survey follows official data last week that showed the UK economy losing momentum at the end of 2014. The figures showed construction, which accounts for about 6% of the economy, was the worst performing sector as output dropped 1.8% on the quarter.

The mixed construction report follows news that factory activity accelerated last month, according to Markit's sister survey of the manufacturing sector. That report also showed manufacturers' costs fell on the back of tumbling oil prices, reinforcing economists' forecasts that cheaper crude will support UK growth this year.

"With tonnes of stimulus in the pipeline, from low oil prices to now rising real wages, economic growth is shaping up to accelerate through the first half of this year," said Rob Wood, chief UK economist at the German bank Berenberg.

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