UK housebuilding growing at fastest rate since 2003

Data shows residential construction leading the surge in activity, with commercial projects and civil engineering also showing strong growth

Britain’s construction companies started the new year with a jump in business as housebuilders enjoyed their strongest growth for more than a decade.

The first gauge of activity in the sector for 2014 suggested commercial projects and civil engineering also saw a resurgence, growing at the fastest pace since before the crisis. But the survey of building firms raised fresh concerns over materials shortages becoming a stumbling block to the sector’s recovery.

The Markit/CIPS UK Construction PMI survey posted a headline reading of 64.6 for January, the strongest since August 2007. That compared with 62.1 in December and confounded forecasts for a fall to 61.5 in a Reuters poll of economists. Against the backdrop of government help for the housing market, residential construction led the surge, with the steepest pick-up in activity since late 2003.

The construction sector, some 6% of the UK economy, still has a long way to go to make up ground lost during the downturn. But January’s upbeat survey will boost hopes that construction’s drag on overall UK GDP growth at the end of 2013 was a blip.

“January’s survey provides reassurance that the UK construction recovery remains on track,” said Tim Moore, senior economist at survey compilers Markit.

“The latest data show positive developments on a number of fronts, with job creation rebounding at the start of the year while output and new business growth was the fastest since the summer of 2007.”

Markit also said a strengthening economy spurred greater spending on commercial projects in January.

But following widespread reports in recent months that bottlenecks for bricks are delaying some building projects, the survey highlighted that suppliers were still “struggling to adjust” to greater demand for construction materials.

“Vendor lead-times were lengthening even before the surge in construction output began last year, and now firms are reporting that cutbacks to capacity have caused supply bottlenecks as demand picks up across the sector,” said Moore.

Despite those worries, businesses were their most confident since September 2009, which in turn supported hiring in January. Higher levels of employment have now been recorded in the sector for eight consecutive months – the longest continuous period of job creation since early 2008.

Ecnomists said the survey suggested construction activity would continue to recover.

Howard Archer at IHS Global Insight said the pick-up in new orders growth “augurs well for construction output over the coming months.”

“An extremely strong across the board … survey for January provides highly compelling evidence that the construction sector’s upturn remains intact at the start of 2014,” he said.

The survey compares with the most recent official data estimating construction output dipped 0.3% quarter-on-quarter in the final three months of 2013. That dragged on overall GDP growth, which eased off to 0.7% in the fourth quarter.

Ron Wood, chief UK economist at Berenberg bank, said the latest construction report and its sister survey on Monday showing that manufacturers continued to grow in January pointed to a return to growth of 0.8% this quarter.

“Low interest rates and government stimulus are evidently driving a very strong construction recovery, which should continue through this year, helping support GDP growth,” he said.

Financial markets are now awaiting Wednesday’s PMI survey from Britain’s dominant services sector for further clues to the start of 2014.

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