UK construction industry enjoys fast growth in new orders

The UK construction industry enjoyed the fastest growth in new orders in almost a year in December, according to a survey, but the weaker pound has driven up firms’ material costs to their highest in five-and-a-half years.

The upbeat report from Markit/CIPS comes a day after a strong survey for the manufacturing sector, where activity hit a two-and-a-half-year high last month. Together they paint a better economic picture than many had expected following the Brexit vote in June. A third industry survey, for the dominant services sector, is due on Thursday.

The construction purchasing managers’ index rose to 54.2 in December from 52.8 in November, signalling stronger expansion. Improving order books and a general rebound in business conditions helped lift construction output to the highest level since March, the report said.

Housebuilding was the main driver behind construction growth again and grew at the fastest rate since January. Work on civil engineering projects also picked up at a robust pace while commercial construction increased only slightly.

However, cost and price pressures have increased further as a result of the sharp fall in sterling since the referendum. The latest rise in input costs, from 71.5 in November to 72.2, was to the highest level since April 2011 and construction firms are passing on higher imported raw material prices to customers, with output prices rising at the fastest pace since March.

Tim Moore, senior economist at IHS Markit and author of the survey, said: “All three main areas of construction activity have started to recover from last summer’s soft patch, but in each case growth remains much weaker than the cyclical peaks seen in 2014.”

Paul Trigg, construction specialist and assistant head of risk underwriting at the trade credit insurer Euler Hermes, was also cautious. “Business confidence across construction remains high. But the industry is yet to feel the full brunt of Brexit and there are concerns the current work pipeline will only carry contractors in the short-term.

“Plummeting levels of foreign direct investment are expected to curb office development, which will hurt contractors as competition ramps up and squeezes low industry margins even further.”