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Housebuilding activity underpins growth for construction industry

Published 02/11/2016

Housebuilding remained the key driver
Housebuilding remained the key driver

A "solid" rise in housebuilding work helped construction activity hit a seven-month high in October, but firms were hit by Brexit uncertainty and soaring costs from the falling pound, according to a report.

The closely-watched Markit/CIPS UK Construction purchasing managers' index (PMI) showed a reading of 52.6 in October - the fastest growth in activity since March and up from 52.3 in September.

A reading above 50 indicated growth.

Housebuilding remained the key driver, with the pace of expansion in residential construction work only slightly weaker than the eight-month high seen in September.

The report pointed to clouds on the horizon though, with growth in new orders across the wider sector dropping since September - hurting confidence among construction firms.

The plunging pound since the Brexit vote has also sent builders' costs surging, with input prices rising at one of the fastest rates seen over the past five years.

The PMI report said some construction firms had seen customers delay spending decision amid uncertainty over Britain's negotiations to quit the European Union.

This knocked confidence among firms, with the data showing the second lowest reading since May 2013.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said while the October data signalled a further bounce-back since the Brexit vote, it was "premature to conclude that the sector is back on a recovery path".

The sector's rebound has relied "solely" on housebuilding activity, he warned.

He said: "C oncerns about oversupply and the potential relocation of financial sector jobs from London due to Brexit likely will continue to subdue commercial construction.

"Meanwhile, growth in housebuilding likely will slow, mortgage rates have little scope to fall further and consumer confidence will weaken as inflation rebounds next year."

Figures also out on Wednesday from Nationwide Building Society showed house price growth ground to a halt in October after 15 successive month-on-month increases.

But housebuilders have been bullish about their post-Brexit prospects, with Persimmon the latest firm to show a resilient performance since the vote as it posted a 19% rise in private sales in its third quarter.

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