2019.05.0206:19:00UTC+00UK Construction Returns To Growth In April On Strong House Building

UK construction output rose for the first time since the start of the year in April, driven by a strong increase in residential work, but overall activity remained subdued amid weaker demand and optimism, survey data from IHS Markit showed on Thursday.

The IHS Markit/CIPS UK Construction Purchasing Managers' Index, or PMI, climbed to 50.5 from 49.7 in March. Economists had forecast a score of 50.3.

A reading above 50 suggests growth in the sector. The PMI score went above the neutral level for the first time since January.

The latest reading signaled a modest expansion of overall construction output, which contrasted with the declines seen in each of the previous two months, IHS Markit said.

Residential work grew at the strongest pace since December 2018 and survey respondents commented on resilient demand conditions and a strong flow of new buyers.

Meanwhile, commercial work remained the weakest area of construction output in April, extending the trend seen during the first quarter of the year. Several firms linked lower commercial construction to Brexit-related uncertainty and delays with client spending decisions.

Civil engineering activity decreased in April, but marginally, with some firms commenting on a lack of new work to replace completed infrastructure projects.

New work declined for the first time since May 2018 and at the fastest pace since March the same year. Political uncertainty, softer UK economic growth projections and subdued demand for new commercial projects all contributed to the fall.

Employment decreased slightly during April, ending more than two-and-a-half years of sustained expansion. Survey respondents blamed lower business optimism and falling sales volumes for reduced hiring.

Business optimism was the weakest since October 2018.

Supplier performance deteriorated sharply in April, despite subdued demand for construction materials, and the lengthening of vendor lead times was the greatest recorded since February 2015. This was mainly due to low stocks and capacity constraints among vendors.

Purchasing costs across the construction sector, thanks to rising raw material prices and stretched supply chains.

Input price inflation accelerated for the third month running and was the fastest since November 2018. Rates charged by sub-contractors rose at a robust and accelerated pace in April, adding pressure on operating expenses.

"A return to growth would normally be considered a positive month for the UK construction sector, but the weakness outside of house building gives more than a little pause for thought," Tim Moore, Associate Director at IHS Markit, said.

"A lack of new work has started to impact on staff recruitment,...provides another signal that construction firms are bracing for an extended period of soft demand ahead."