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UK construction sector on the up but weak pound is hitting costs

By Ben Woods

UK 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."

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