Belfast Telegraph

Construction output surges despite 'intense pressures' from Brexit-hit pound

Construction output rose at its fastest pace for nine months in December, but firms are still grappling with "intense cost pressures" caused by the Brexit-hit pound.

The closely watched Markit/CIPS UK Construction purchasing managers' index (PMI) rose to 54.2 last month, up from 52.8 in November and above economists' expectations of 52.6.

A reading above 50 indicates growth.

The better-than-expected performance was driven by improved order books and a rebound in business conditions, with new order growth hitting an 11-month high.

However, input cost inflation jumped to its highest level since April 2011, as rising imported raw material prices - driven by sterling's slump since the Brexit vote - were passed down from suppliers.

It comes after separate PMI figures on Tuesday showed manufacturing output unexpectedly leap to a two-and-a-half-year high in December thanks to an exports boost from the plunging pound.

Tim Moore, senior economist at IHS Markit, said the PMI data showed the construction industry delivered a "solid rebound" in the final quarter of last year.

"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.

"Housebuilding remains a key engine of growth for the construction sector, with the latest upturn the fastest for almost one year.

"Meanwhile, commercial activity was the weakest performing category in December, reflecting an ongoing drag from subdued investment spending and heightened economic uncertainty."

The PMI report said housebuilding was the best performing area of the industry, with housing activity delivering its fastest expansion since January.

Rising workloads also bumped up employment levels, as recruitment grew at its quickest rate since May but remained "much weaker" than the average.

Nearly half - 48% - of the firms surveyed for the report expect business activity to step up over the next year, with business confidence hitting a three-month high.

Howard Archer, chief UK and European economist at IHS Global Insight, said the PMI report boosted hopes for a robust performance from the UK economy in the fourth quarter.

"The improved December construction purchasing managers' survey follows on from the manufacturing survey showing activity picking up to a 30-month high in December.

"This buoys hopes that the UK economy continued to hold up pretty well in the fourth quarter of 2016 after resilient expansion of 0.6% quarter-on-quarter in the third quarter following June's Brexit vote.

"A healthy December purchasing managers' survey for the dominant services sector would be particularly reassuring."

The UK economy was unexpectedly revised up last month, with gross domestic product (GDP) expanding 0.6% in the third quarter, up from a previous estimate of 0.5%, according to official figures.

However, the Office for National Statistics said growth was weaker than initially thought in the first half of 2016, cutting its estimates by 0.1% for the first and second quarters to 0.3% and 0.6% respectively.

The latest official figures for the construction industry showed output fell 0.6% month-on-month in October.

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