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Civil engineering growth drives modest rise in construction output

Construction output rose modestly in February, as civil engineering growth helped to offset a slowdown in housebuilding.

The closely watched Markit/CIPS UK Construction purchasing managers' index (PMI) rose to 52.5 last month, up from 52.2 in January and above economists' expectations of 52.0.

A reading above 50 indicates growth.

Civil engineering replaced housebuilding as the main growth driver, as residential construction rose at its slowest pace in six months.

Commercial building, meanwhile, declined for the first time since October.

While the index held above 50 for the sixth consecutive month, the rate of output growth was weaker than its post-referendum peak of 54.2 in December and was "subdued" compared to trends seen over the past three-and-a-half years, the report explained.

Some firms said demand had "softened" since the start of the new year.

Tim Moore, a senior economist at IHS Markit, said: "Survey respondents mainly cited an underlying slowdown in sales growth, with the latest rise in new work the weakest for four months.

"In some cases, construction companies reported that sharply rising input prices had a disruptive impact on contract negotiations."

He explained that suppliers have made efforts to pass on rising energy costs, with global commodity prices amplifying the effects of the weak sterling exchange rate.

Input costs have climbed in part due to the post-Brexit collapse of the pound, which has made imports more expensive for domestic firms.

Firms said they experienced the second-fastest rise in input costs since August 2008.

But construction companies are still relatively optimistic about the year ahead, with 48% forecasting a rise in business activity over the next 12 months, compared to 13% expecting a decline.

It was a stronger degree of positive sentiment than seen on average during the second half of 2016, but was still weaker than the 13-month high reported in January.

Most firms are expecting strong demand for house building projects to help boost construction output going forward.

Industry confidence helped sustain hiring across the sector, with sub-contractor demand picking up last month, but that demand is raising concerns about the UK's labour pool.

Duncan Brock, the director of customer relations at the Chartered Institute of Procurement and Supply (Cips), said: " The drop in sub-contractor availability was the largest seen since January 2016, against a backdrop of rising employment numbers across the construction sector, which will add to worries around labour market capacity as we move along the path to Brexit."

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