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UK housing boom lifts construction output

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·Business Reporter, Yahoo Finance UK
·3-min read
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UK housing boom
UK housing boom: Housebuilding came in at 61.5 last month, replacing commercial work as the best performing category of construction work. Photo: Eddie Keogh/Reuters

The UK construction sector saw its fastest rise in eight months in February thanks to an accelerated rise in housing activity.

Building companies said the rise in output was also on the back of stronger client confidence as the government's Plan B restrictions were fully lifted in Britain, and due to the start of work on new projects.

According to IHS Markit’s latest construction purchasing manager’s index (PMI), February’s reading came in at 59.1, up from 56.3 the month before.

Any reading above 50 indicates growth. The headline index has now posted above the neutral 50 threshold in each of the last 13 months.

Housebuilding came in at 61.5 last month, replacing commercial work (58.4) as the best performing category of construction work due to more secured contracts in the pipeline of new work, and improved deliveries for some materials.

The recent housing boom has also boosted the share price of property companies such as Redrow (RDW.L), Taylor Wimpey (TW.L), Persimmon (PSN.L) and Barratt Developments ($BDEV.L).

The latest increase in residential work was the strongest since mid-2021.

According to IHS Markit’s latest construction purchasing manager’s index (PMI), February’s reading came in at 59.1, up from 56.3 the month before. Chart: IHS Markit, CIPS
According to IHS Markit’s latest construction purchasing manager’s index (PMI), February’s reading came in at 59.1, up from 56.3 the month before. Chart: IHS Markit, CIPS

Commercial construction also expanded at a quicker pace than in January, with the rate of growth the sharpest since last July.

Meanwhile, civil engineering activity, at 57.5, increased at an accelerated pace that was the strongest since June last year.

IHS also added that new order growth accelerated for the fourth consecutive months in the latest survey period to extend the current sequence of expansion to 21 months. Staffing levels also rose at a sharp pace, the data showed.

However, construction firms did report widespread supply constraints and rapidly increasing input costs, although the rate of inflation in the latter was the least severe for 11 months.

Ongoing disruption also dampened the year-ahead outlook for activity, with confidence at the lowest since January 2021.

Read more: UK house prices surge past £260,000 for first time despite inflation concerns

Around 36% of the survey panel reported longer delivery times among suppliers in February, while only 4% saw an improvement.

Delays were overwhelmingly linked to driver and material shortages, as well as international shipping delays. However, the number of construction firms reporting longer lead times for deliveries was down from a peak of 77% in mid-2021.

The near-term outlook for construction activity remained positive in February. Just under half of the survey panel (48%) forecast an increase in output during the year ahead, while only 9% predicted a fall.

"UK construction companies achieved a faster expansion in output volumes in February as the economy recovered from the recent wave of COVID-19 infections related to the Omicron variant,” Usamah Bhatti, economist at IHS Markit, said.

Read more: Taylor Wimpey plans £150m share buyback as profits surge

“It appears that the peak of price pressures has passed as the rate of input cost inflation eased for the sixth month in a row to reach the softest since last March. At the same time, reports of supplier delays were considerably lower than those seen in the middle of last year.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “Curbing inflation will continue to be a big issue for building firms who will be nervous about securing continuing supply and offsetting price rises to improve business margins, especially if costs continue their skyward trajectory."

Watch: Will UK house prices ever fall?

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