UK construction sector growth hits six-month high
By Michele Maatouk
Date: Friday 04 Feb 2022
(Sharecast News) - Growth in the UK construction sector hit a six-month high in January as cost pressures and worries about Omicron eased, according to a survey released on Friday.
The IHS/Markit CIPS construction purchasing managers' index rose to 56.3 from 54.3 in December. This marked the strongest rate out of output expansion since July last year. A reading above 50.0 indicates expansion, while a reading below signals contraction.
The survey found that new orders rose at the fastest pace since August 2021 and input buying was the strongest for six months.
Commercial work was the best-performing category, with the index printing at 57.6 and growth accelerating to a six-month high. Survey respondents noted that optimism about the easing of Covid restrictions had led to greater spending on commercial construction projects.
Meanwhile, civil engineering returned to growth in January - the index came in at 53.2 - although the rebound was softer than seen in other parts of the construction sector.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "Builders enjoyed their best month since July, bouncing back from December's doldrums as opportunities unfurled in terms of new orders, job creation and optimism offering a strong start to 2022.
"Pipelines of commercial work snapped back into action as businesses were more confident in their investment decisions and the sector came out on top with the strongest gap in output growth compared to the residential sector in almost six years. Housebuilders became January's laggards raising concerns that higher interest rates and consumer inflation could feed into a further slowdown in the coming months as affordability rates are weakened.
"There was some light at the end of the tunnel where supply chains showed signs of improvement and the best delivery times since September 2020. However, the rapid upturn in activity is putting more pressure on suppliers still in recovery while there are shortages in skilled labour and a lack of reliable transportation adding to their woes."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "Looking ahead, the near-term outlook for construction output is largely positive. Orders rose in January at a slightly faster pace than on average in the second half of 2021, and construction companies were the most upbeat about the 12-month outlook since May. Some builders also will benefit from the 8% increase in public sector gross investment in the upcoming 2022/23 fiscal year.
"Nonetheless, demand for new homes looks set to be hit by both a sharp fall in households' real disposable income and an increase in new mortgage rates. In addition, commercial property vacancies likely will increase from March, when the government will end the evictions ban, which will reduce demand for new buildings. Accordingly, we think that construction output in 2022 will be around 4% higher than last year, but still about 1% adrift from its 2019 level."
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