Civil engineering overtakes housing as construction’s biggest growth sector

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Civil engineering overtakes housing as construction’s biggest growth sector

Civil engineering is now the construction industry’s strongest growth area, overtaking the house-building sector that has led industry revival to date.

The latest monthly survey of construction purchasing managers also shows that construction activity has now increased for ten consecutive months and job creation in the industry has hit a three-month high.

Adjusted for seasonal factors, the Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) posted 62.6 in February, down from a 77-month high of 64.6 in January. Reports from survey respondents suggested that disruptions related to rain and floods had contributed to softer construction output growth in February, especially house-building activity.

The index has now posted above the 50.0 no-change level every month since May 2013. Residential construction increased sharply in February, but at the slowest pace for four months. Growth of commercial activity also eased in February, and was the least marked since November 2013. Civil engineering activity was the best performing area of construction in February, with the pace of expansion the steepest since the series began in April 1997. Construction firms noted greater spending among local authorities on capital projects and maintenance, in some cases in response to recent flooding and adverse weather conditions.

February data indicated a sharp rise in new work received by construction companies, although the pace of expansion eased to the slowest for four months. Anecdotal evidence cited strong client demand for new projects, but there were some reports that unusually wet weather had a disruptive influence on sales during the latest survey period.

Higher levels of output and new business resulted in further sharp increases in both employment and purchasing activity across the construction sector. The latest rise in staffing levels was the fastest for three months, which some respondents linked to robust confidence about the business outlook. Around six times as many construction companies (59%) expect a rise in output over the year ahead as those that forecast a reduction (10%). There were widespread reports that improving economic conditions and greater invitations to tender had supported optimism about future business activity.

Strong demand for inputs, alongside low stocks at suppliers, led to another marked lengthening of vendor lead times in February. Survey respondents also noted that supply chain pressures had contributed to higher cost burdens, with the overall rate of input price inflation accelerating from the five-month low recorded in January. Moreover, average rates charged by sub-contractors increased at a survey-record pace during February.

This reflected a fall in subcontractor availability for the eighth month running, which is the longest period of decline since that seen in 2007.

 

 

Tim Moore, senior economist at Markit and author of the survey, said: “Construction output growth succumbed somewhat to the recent wet weather, with temporary disruptions from heavy rainfall most acute for house building activity in February. Consequently, residential work ceded its place as the best performing category to civil engineering, as construction work related to flood relief and infrastructure maintenance rose sharply over the month.

“While some froth has come off overall construction growth in February, the latest data showed that job creation picked up to a pace rarely seen since the summer of 2007. Moreover, in the latest survey there were six construction companies forecasting higher activity over the year ahead for every one anticipating a reduction.

“As a result, there appears an undiminished depth of belief among construction companies that strong growth will be sustained this year, helped by more favourable economic conditions and an ongoing house building recovery.”

David Noble, chief executive of the Chartered Institute of Purchasing & Supply (CIPS), which sponsors the survey, said: “Bad weather took a bite out of progress in house-building, but UK construction remains on a strong growth trajectory in February. The sector was fuelled by the strongest rise in civil engineering activity in the survey’s history, as an increase in spending was recorded on investment and infrastructure projects in response to recent flooding. Even though both housing and commercial activity suffered a slide in pace of growth in February, the overall performance was one of continued expansion.

“Rising employment and highly positive business expectations also suggest that the slowdown will only be temporary. Backed by favourable market conditions, firms are continuing to increase staff numbers, hitting a three-month high this month.

“Strong demand is continuing to put pressure at a supplier level, with vendors battling with low stocks and prices increasing as a result. While delivery times are still deteriorating, they are at least doing so at the slowest rate since August 2013, suggesting that the very worst of the squeeze has passed.”

 

 

The Construction Index Uk News