UK housebuilding activity remains robust to lift construction PMI

UK construction activity rallied more than expected in November, according to a survey from IHS Markit released on Monday, with residential building leading the way.

The Markit/CIPS UK construction purchasing managers' index jumped to a five-month high of 53.1 for November from 50.8 in October.

With a PMI reading above 50 signalling growth, November's survey pointed to a return to growth after two consecutive quarters of contraction and was well ahead of the consensus forecast of 51.0.

A pick-up in the sector was largely confined to residential building, the survey found, with resilient demand reported and even an accelerated upturn in residential work.

The weakest area was commercial construction, where volumes were reported to be down as in much of 2017, with the research finding some firms complaining about Brexit-related uncertainty and the subdued economic outlook holding back client spending.

Civil engineering activity remaining negative for the third consecutive month, which is its longest period of decline in more than four years.

The housing index climbed to 56.6 from 53.5; the civil engineering activity index rose 49.4 from 48.8; and commercial activity slipped back to 48.4 from 49.3.

"A solid yet uneven improvement in business conditions", was how IHS associate director Tim Moore described the construction market in November.

“Survey respondents noted that residential projects underpinned the rebound in total new order growth to its strongest since June, helped by strong demand fundamentals and a supportive policy backdrop.

“Construction firms reported that heightened economic and political uncertainty continued to hold back commercial development activity. The latest drop in civil engineering was linked to a recent lack of tender opportunities for infrastructure-related projects."

He said business optimism across the construction sector remained relatively subdued, but picked up from the near five-year low seen in October.

"This represented the first improvement in confidence for three months, which construction firms attributed to increased sales enquiries and hopes that risk aversion among clients will recede over the course of next year.”

Economist Samuel Tombs at Pantheon Macroeconomics said the stabilisation after two consecutive quarters of contraction was solely thanks to house building and noted that both the overall new orders and future activity indices are consistent with output continuing to flatline in the near term.

"Looking ahead, continued support from relatively low mortgage rates, the Help to Buy Scheme and other housing policy initiatives should ensure that housing maintains momentum. Meanwhile, signs that the Brexit divorce terms will be agreed imminently, enabling future relationship talks to begin, might help corporate confidence to recover.

"But with the UK government insisting -- for now -- that Britain eventually will leave the EU’s single market and customs union, firms likely will remain reluctant to commit to construction projects with long time horizons. We expect the construction sector to bump along the bottom as long as a hard Brexit still is one of the options on the table."