Construction activity rebounds despite political uncertainty

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Output in the UK construction sector unexpectedly rebounded in February, but the industry remained under pressure as weak confidence and political uncertainty took its toll on demand.

The Markit/CIPS UK Construction purchasing managers’ index (PMI) hit 51.4 last month, up from January’s four-month low of 50.2, with economists expecting a figure of 50.5.

A reading above 50 indicates growth.

While February proved a brighter month for the embattled sector, activity was still short of 2017’s average 52.3 as the amount of new work hauled in by firms dropped for the second month in a row.

The update comes after the manufacturing industry drifted to an eight-month low in February, with a jump in new orders failing to counter a slowdown in production.

Sterling was marginally higher versus the US dollar at 1.378 in the wake of Friday’s announcement. Versus the euro, the pound was flat at 1.122.

IHS Markit associate director Tim Moore said that “despite pockets of resilience” there was little to suggest that growth would pick up speed.

“The construction sector endured another difficult month during February, with fragile business confidence, entrenched political uncertainty and softer housing market conditions all factors keeping growth in the slow lane,” he said.

“Civil engineering activity was the worst-performing category in February, with survey respondents again commenting on a shallow pool of work to replace projects reaching completion.”

Housebuilding struggled last month, putting it on track for its weakest three-month performance since the third quarter of 2016.

Cost pressures also hampered firms due to higher fuel costs, pricier raw materials and rising staff wages.

However, commercial construction managed to shrug off the gloom by stumping up its fastest rate of expansion for 10 months.

Confidence among construction companies was at “one of the lowest levels seen in the past five years”, according to the report, with Britain’s impending divorce from the European Union flagged as a key reason.

“Hopes that a Brexit transition deal could be agreed by the end of this month now look forlorn, so businesses will remain reluctant to commit to long-term capital expenditure.

“Rising mortgage rates will subdue demand for new houses.

“Meanwhile, public sector investment is set to fall by 4.5% in 2018/19, provided the Chancellor does not revise the November Budget plans in this month’s Spring Statement.”

The latest PMI survey follows official figures last week showing slower economic growth than previously thought in the final three months of 2017.

The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.4% in its second estimate for October to December 2017, revising down its first reading of 0.5%.

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