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'Swift recovery' in housebuilding buoys construction industry

Published 04/10/2016

Output in Britain's construction industry grew for the first time in four months in September following a
Output in Britain's construction industry grew for the first time in four months in September following a "swift recovery" in housebuilding

Output in Britain's construction industry grew for the first time in four months in September following a "swift recovery" in housebuilding.

The closely-watched Markit/CIPS construction purchasing managers' index (PMI) hit 52.3 last month, up from 49.2 in August and above economists' expectations of 49.

A reading above 50 indicated growth.

The expansion is a stark contrast to the sector's slump in the aftermath of the Brexit vote when activity reached 45.9 in July.

Tim Moore, senior economist at IHS Markit, said: "UK construction companies moved back into expansion mode during September, led by a swift recovery in residential building from the three-and a-half year low recorded in June.

"Resilient housing market conditions and a renewed upturn in civil engineering activity helped to drive an overall improvement in construction output volumes for the first time since the EU referendum."

Activity in the construction industry rose at its fastest pace since March, but was softer than the long running survey average of 54.6, the PMI report said.

Sector activity was buoyed over the period by a rise in new work for the first time since April, driven in part by growing demand from the housing market.

New orders also ended four months of declines to pick up in September, while housing activity growth was the strongest recorded since January.

Overall output was bolstered by a robust performance from civil engineering activity, which grew at its fastest pace since March.

However, commercial construction activity recorded its longest period of sustained decline in more than three years after falling for the fourth month in a row in September.

Sub-contractor employment remained in the doldrums last month, falling at its fastest rate since late 2013, but overall employment levels rose following the growth in new work.

The return to growth for construction PMI comes after o utput in Britain's manufacturing sector reached its highest level for more than two years in September, as the industry bounced back from a post-Brexit vote slump.

The manufacturing PMI said on Monday that output hit 55.4 last month, up from 53.4 in August, and above economist expectations of 52.1.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said there was still little hope that the construction industry would provide any support to UK gross domestic product (GDP) over the coming quarters.

" The construction sector is starting to stabilise after a terrible six months, but it is too soon to conclude that sustained growth now lies ahead."

"Sterling's further depreciation will continue to put upward pressure on import costs and make it harder for builders to attract labour from overseas," he added.

"Meanwhile, the Government's intention to extract a bespoke Brexit deal suggests that negotiations with the EU will be protracted and businesses will lack clarity over the medium-term outlook for a long time."

The latest official figures for the construction industry showed output stalled in July, compared to a 1% drop in activity in June.

But on Friday, Britain's powerhouse services sector - which accounts for more than three-quarters of the UK economy - defied expectations of a post-Brexit vote slump by expanding 0.4% in the first month after the EU referendum result.

It came on the same day that the Office for National Statistics (ONS) revised up its reading for the UK economy - with GDP growing 0.7% in the second quarter, up from a previous estimate of 0.6% for the period.

UK GDP grew by 0.4% in the first three months of the year.

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