UK building industry makes strong start to 2015

UK building industry makes strong start to 2015

A resurgence in confidence and orders gives construction sector a lift after a drop to a 17-month low in December

Building firms performed strongly in February, ending the slowdown that hit the construction sector at the end of last year. However, economists say growth in the sector is likely to cool later this year.

The latest survey by financial data provider Markit found that a resurgence in confidence and orders gave the building industry a lift after a drop to a 17-month low in December.

The Markit/CIPS Construction PMI rose from 59.1 in January to 60.1 in February, continuing the return to fast growth seen from the beginning of this year and registering the highest PMI reading since October.

Survey respondents attributed the increasing output levels to strong workloads and growing confidence among clients.

Chris Williamson, chief UK economist at Markit, said: "The survey has recorded a remarkably strong spell of continuous growth since July 2013, fuelled initially by rising house building activity amid government incentives for homebuyers but rapidly becoming more broad-based as the wider economic recovery took hold. The latest data suggest that, while the pace of expansion has cooled since the peaks seen late last year, the recovery retains strong momentum."

He said a return to strength in housebuilding and commercial construction activity were strong features of the February figures, alongside a more modest rise in civil engineering work.

However, growth is likely to cool this year. Williamson said: "The sector is likely to see weaker demand for building projects as some uncertainty sets in around the general election. Indicators such as the Knight Frank House Price Sentiment Index, which hit an 18-month low in February, suggest that the housing market is cooling, which may lead to lower residential construction."
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The return of dramatic cuts in public services from April, which will hit firms that depend on housing repair and maintenance work, will also dampen activity compared to last year.

Most councils have already agreed cuts totalling 12% on average for 2015/16 after a 6% across the board funding cut in the latest financial year.

Tim Moore, a senior economist at Markit and author of the report, said subcontractors were also raising their rates, putting pressure on firms to raise prices.

"Tighter labour market conditions also helped push up operating costs, as highlighted by the fastest rise in sub-contractor charges since the survey began almost 18 years ago," he said.

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