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Construction sector hints at recovery as commercial building picks up pace

Mar 7th 2018 8:03am

Building site

Britain’s construction sector is beginning to show signs of progression as commercial building work accelerated in February at its fastest pace since May 2017.

Residential construction also picked up with IHS Markit’s purchasing managers’ index (PMI) for homebuilding rising to 51.5, up from 48.1 in January and above the 50-mark which indicates growth. But civil engineering work fell into contraction with a PMI of 47.3.

Overall the construction PMI rose from 50.2 to 51.4, the first rise in three months. It represents a faster acceleration than economists had anticipated.

Carillion’s collapse in January did not help, although analysts believe the wider fallout has been limited.

Max Jones at Lloyds Bank: “The contagion from Carillion’s collapse in January has been relatively well contained among the top-tier contractors."

He added that the impact was more keenly felt further down the supply chain, which "has prompted a renewed focus among larger firms on supporting these businesses to help keep projects on track”.

“On the positive side, there continues to be evidence of the increasing use of technology in key schemes. Deployed more widely, this creates the potential for better project management and, in the long term, improved profitability and margins.”

The more upbeat numbers remain modest by historical standards.

Duncan Brock at the Chartered Institute of Procurement and Supply said: “The only glimmer of hope through the masonry came from the commercial sector, with the strongest bounceback since May 2017 after languishing in the doldrums these past few months.”

Businesses clearly expect more demand in the months ahead, with Mr Brock saying that: “Continued job creation was the biggest surprise as survey respondents may be preparing for stronger than expected work flows.”

The modest resurgence in commercial and residential building is “an encouraging sign”, said Eduardo Gorab at Capital Economics, though he doubts it is the start of a strong upswing.

“The weakness of new orders, despite a relatively healthy outlook for the economy and still rising future business expectations, probably reflects supply-side problems,” he said, noting rising input prices and higher costs from sub-contractors, while those contractors’ quality is reported to be falling, concerns which “seem unlikely to dissipate any time soon”.

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