Commercial building slump sparks fall in construction activity

Output in Britain's construction sector unexpectedly fell last month as commercial building and civil engineering work continued to drag on the industry.

The Markit/CIPS UK Construction purchasing managers’ index (PMI) showed a reading of 52.2 in December, down from 53.1 in November and below economists’ forecasts of 53.1.

A reading above 50 indicates growth.

Despite the industry struggling to fire on all cylinders, housebuilding levels proved robust and new orders accelerated at the fastest pace since May.

However, these bright spots failed to inspire a cheerier outlook from firms, with the balance of companies expecting a boost to output levels in 2018 proving one of the weakest for four-and-a-half years.

The update comes as output in the UK manufacturing industry achieved “solid growth” last month, but eased back from a near four-and-a-half-year high when separate PMI data was released on Tuesday.

Tim Moore, IHS Markit’s associate director, said: “The UK construction sector achieved a moderate expansion of business activity at the end of 2017, although the recovery remained uneven and slowed overall since November.

“Construction companies indicated that another strong contribution from housebuilding helped to offset subdued civil engineering activity and reduced volumes of commercial work.

“Total new orders picked up at the fastest pace for seven months in December, which provides a positive signal for construction workloads in the short term.

“Resilient demand and forthcoming project starts also led to greater job creation and the strongest increase in input buying for two years.”

The number of new jobs being created across the sector touched its highest level since June, according to the report, which showed housebuilding work had grown for the 16th month on the bounce.

The boost came despite builders having to grapple with escalating costs, as the price of blocks, bricks, insulation and roof tiles all rose last month.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The construction sector ended 2017 on a weak note, and it likely will continue to struggle in 2018.

“On past form, the average level of the PMI in Q4, 52.0, indicates that construction output held steady, following two consecutive quarter-on-quarter declines.

“The official measure of construction output, however, was 2.5% below its Q3 average in October, so a further contraction looks likely.”