UK construction sector unexpectedly contracts in January
UK construction sector activity unexpectedly contracted in January as the third national lockdown took its toll, according to a survey released on Thursday.
The IHS Markit/CIPS construction purchasing managers’ index fell to 49.2 from 54.6 in December, missing expectations for a reading of 52/9. This marked the first overall decline in construction output since May 2020.
A reading above 50.0 indicates growth, while a reading below signals contraction.
The survey found there was a renewed fall in commercial activity and another drop in work on civil engineering projects, but strong growth in the residential category, while the increase in housebuilding was the slowest since the rebound began in June last year.
Tim Moore, economics director at IHS Markit, said: "The construction sector ended a seven-month run of expansion in January as a renewed slide in commercial work dragged down overall output volumes. House building was the only major construction segment to register growth, but momentum slowed considerably in comparison to the second half of last year.
"Construction companies continued to report major delays with receiving imported products and materials from suppliers, with congestion at UK ports contributing to the sharpest lengthening of delivery times since May 2020. Adding to the squeeze on the construction sector, rising steel and timber costs led to the fastest rate of input price inflation for just over two-and-a-half years."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said higher stamp duty will dampen the recovery in housebuilding.
"The third lockdown has had a bigger impact on construction activity than the second one in November, amid greater uncertainty regarding how long the economy will have to bear restrictions, as well as staffing issues caused by the renewed closure of schools," he said.
"Commercial and civil engineering activity fell sharply, while growth in housing activity slowed to an eight-month low. Lengthening delivery times for raw materials, due to the disruption to shipping lanes and ports, also appear to be impeding some work.
"Looking ahead, the recovery in the construction sector should recommence in March, when the rest of the economy will begin to reopen. High levels of public sector investment in 2021/22 - 27% higher than in 2019/20, albeit below this year’s Covid-boosted level - also will support the sector. Nonetheless, commercial construction work likely will be weighed down by an overhang of office space, due to a shift towards working-from-home that will partly outlive the pandemic, and by the natural hesitancy of business to invest at the beginning of an economic upswing. In addition, weakness in the housing market after the threshold for stamp duty returns to £125K, from £500K, at the end of March will curtail the pick-up in housebuilding activity. So by the end of this year, we think that construction activity will be up just 1% year-over-year and therefore still about 1% below its February 2019 peak."