UK Construction Activity Growth Accelerates Despite Weak Outlook

UK construction sector expansion unexpectedly accelerated in October, but firms were the least optimistic about prospects in nearly six years, survey data from IHS Markit showed on Friday.

The IHS Markit/ Chartered Institute of Procurement & Supply construction Purchasing Managers’ Index, or PMI, rose to 53.2 from 52.1 in September. Economists had expected a score of 52.

A PMI reading above 50 suggests growth in the sector. The construction sector has grown every month since April, yet the PMI reading remains below its long-term average of 54.3.

Overall, the October survey for activity was more encouraging than expected, but caution on new orders, labor availability and future expectations suggest the outlook remains subdued, Andrew Burrell, an economist at Capital Economics, said.

The improvement in November was due to the commencement of new contracts, overseas work and a general increase in business.

Among different sectors, civil engineering drove the overall growth with the strongest expansion since July 2017, after declines in both August and September. Civil engineering became the best performing segment for the first time since January.

House building and commercial construction growth were also solid, but the former was the weakest in seven months and the latter was the slowest in five months.

The survey showed that new business grew at the weakest pace in the current five-month sequence of expansion.

Slower new order growth impacted firms’ expectations for future growth, with the business expectations index falling to a near six-year low.

Cost pressures in the construction sector remained strong in October, despite the rate of input price inflation easing to a 27-month low.

“These results point to the sector getting stuck in the mud as we approach March 2019, and with ongoing supplier delays and stock shortages, the sector may not be able to respond quickly enough anyway should there by a sudden upturn in fortunes,” Duncan Brock, group director at CIPS said.

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