Construction growth reaches four-month high in November
The construction sector defied all expectations last month to record a “solid expansion” of overall output with job creation accelerating to its fastest since December 2015.
Despite Brexit worries continuing to hold back business confidence, the Markit/CIPS UK Construction purchasing managers’ index (PMI) rose to 53.4 in November, up from 53.2 in October. A reading above 50 indicates growth and economists had been expecting a reading of just 52.5.
Signalling the strongest rate of business activity expansion since July, the increase was supported by a broad-based upturn in the three sub-categories of activity monitored by the survey. Growth of new work picked up since October and rising client demand underpinned a robust and accelerated expansion of employment.
Residential building reclaimed its position as the fastest growing area of construction work in November. The latest rise in house building activity was the strongest for three months. Latest data also pointed to sustained increases in commercial work and civil engineering activity.
Survey respondents noted that rising client demand continued to boost construction output during November. The rate of new business growth picked up since October, but remained softer than seen on average in the third quarter of 2018. Some construction firms noted that Brexit uncertainty had held back new order growth, while there were also reports citing delays to public sector spending decisions.
Higher levels of new business contributed to a solid expansion of input buying and rising employment numbers during November. The latest increase in staffing levels was the fastest since December 2015. Meanwhile, greater demand for construction products and materials contributed to worsening vendor performance. Longer delivery times from suppliers have been reported in each month since September 2010.
Growing demand for construction inputs led to another sharp rise in input prices during November. Survey respondents also commented on higher transportation costs and rising staff salaries. The overall rate of input price inflation was the fastest since June.
Meanwhile, latest data indicated that business optimism across the construction sector rebounded from the near six-year low seen in October. The latest reading signalled the strongest degree of confidence for three months. Anecdotal evidence suggested that Brexit-related concerns remained the main factor weighing on business optimism during November.
Tim Moore, Economics Associate Director at IHS Markit, which compiles the survey, said: “November data indicates that the UK construction sector remains in expansion mode, with resilient business activity trends seen for housing, commercial and civil engineering activity. The latest overall rise in construction output was the fastest since July, helped by a stronger contribution to growth from house building activity.
“Higher levels of new work were recorded for the sixth month running in November, which resulted in a robust and accelerated rise in staffing numbers. The latest upturn in employment was the fastest for almost three years. A number of construction firms noted that greater demand for staff had led to upward pressure on salaries in November.
“Business confidence regarding the year ahead outlook for construction work picked up from October’s recent low, but remained weaker than seen on average in the first half of 2018. Survey respondents widely commented that Brexit-related uncertainty had held back business optimism in November.”
Mark Robinson, Scape Group chief executive, said: “The construction sector defied all expectations in November as Brexit hysteria reached fever pitch. Clients are recognising that whatever the weather we need new homes, we need schools and we need new roads. And with growth reaching a four-month high – evidently, the construction sector is not seizing up.
“But that’s not to say it is all plain sailing from here. While it’s fantastic to see new work picking up, the industry risks not having the manpower to deliver the projects.
“Under the current Brexit deal it isn’t possible for non-EEA workers to obtain a work permit for low-skilled employment. Turning the EU labour tap of off could cause an unprecedented skills deficit and an inability to deliver the essential new homes and infrastructure the country needs.
“The solution is twofold – the government must reclassify construction workers as highly skilled so we can keep attracting fresh talent. The government also needs to get serious about technical education at home – by encouraging technical training, reversing education cuts and creating an apprenticeship system that works for all.”