Belfast Telegraph

Cost increases spark construction output slowdown

Construction output slowed in January as firms grappled with the biggest rise in costs since 2008 as a result of the Brexit-induced collapse in the value of sterling.

The closely watched Markit/CIPS UK Construction purchasing managers' index (PMI) fell to 52.2 last month, down from 54.2 in December and below economists' expectations of 53.8.

A reading above 50 indicates growth.

Tim Moore, senior economist at IHS Markit, said: "UK construction firms experienced a subdued start to 2017, with all the key categories of activity losing momentum.

"While housebuilding retained its position as the fastest growing part of the construction sector, the latest upturn was the weakest since the post-referendum rebound emerged in September 2016."

Order growth in January also slowed and t he weak pound continued to have an inflationary impact, with purchasing costs rising at the strongest rate for almost eight and a half years as suppliers passed on higher prices for commodities and imported construction materials.

All three sub-sectors - housing, commercial and civil engineering - recorded softer rates of output growth in January, the report said.

However, respondents to the latest survey signalled that sentiment is still buoyant, with confidence for the year ahead rising to its strongest since December 2015. This was put down to new projects and a better-than-expected economic backdrop.

This led to more positive trends in staff hiring across the construction sector at the start of 2017.

Mr Moore added: "There were more positive trends in terms of staff hiring and business optimism regarding the year-ahead outlook.

"The latest survey revealed an accelerated rise in payroll numbers at construction companies, as well as the fastest upturn in sub-contractor usage since the end of 2015."

The data comes after numbers out on Wednesday showed that Britain's manufacturing industry was hit by a double whammy of rising commodity prices and the weaker pound, sending costs to record highs.

Economists said the latest figures show that any revival in activity is running out of steam.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The mini-revival in construction activity, prompted by relief among firms about the short-term fallout from the Brexit vote and the boost to housing demand from the MPC's interest rate cut in August, already has run out of steam."