UK construction industry records highest growth on six years because of house price boom

Britain’s construction industry grew faster than expected on November, boosted by the strongest orders in 6 years amid a surge in house prices.

The IHS Markit/CIPS construction Getting Managers’ Index (PMI), considered an excellent gauge of the sector's health, rose to 54.7 in November from 53.1 found in October, its strongest level since July with new orders the best since November 2014. A reading above the 50.0 level indicates progress, while a figure below displays a contraction.

“UK construction output stayed in a recovery path on November and there have been signs that the main growth driver offers transitioned from catch-up job to new tasks,” said Tim Moore, IHS Markit’s economics director.

"House construction was once more the stand-out performer, while a return to development for civil engineering contributed to the go up in the headline PMI during November. Commercial structure lagged behind the restoration seen somewhere else in the sector amid subdued demand for work place, retail developments and different corporate projects strike by the pandemic.”

The situation was much less rosy in the eurozone, where construction continued to decline with a PMI reading of 45.6 in November, up somewhat from 44.9 in October. The decline in activity was widespread across the three major eurozone economies, with French building firms recording the virtually all marked contraction, as well as a good fall in Germany. End result in Italy fell simply fractionally in November.

"The eurozone construction sector continued to article a decline in activity during November, along with a quicker fall in innovative orders, as steep contractions in France and Germany weighed on the region’s performance,” said Usamah Bhatti, economist at IHS Markit.

“Businesses found in the bloc also lowered staffing amounts for the ninth month in a good row although the rate of job shedding eased in the latest survey period.”

Construction businesses found in the bloc are pessimistic for the entire year ahead due to the second wave of Covid-19 and having less projects coming to tender over the approaching a few months, IHS Markit said.

The extra buoyant mood in Britain’s equivalent sector was powered by a sharp rise internal prices since the end of June, because of pent-up demand following the first lockdown and UK finance minister Rishi Sunak’s Stamp Duty Terrain Tax Getaway, which runs before end of March.

British house prices rose 6.5 % in November year-on-year, the most effective rate since January 2015, with the average house price now £229,721, in line with the Nationwide House Price Index.

Lenders have approved the most mortgages since 2007, as potential buyers upsize to larger homes in case of future lockdowns. Subsequently, it has spurred housebuilders to commit to more projects, and November also brought the first growth in civil engineering activity since July.

Official data showed Britain’s monthly construction outcome almost halved on April during the primary lockdown, and in September it was still 10 % below the particular level it hit a year previous. While the November reading indicated a solid upsurge in total construction output, the rate of growth remained softer compared to the peak observed in July.

Employment in the sector also continued to fall seeing that firms looked to lessen overheads, though by the smallest sum since February, and the disruption to provide chains led to a sharp upsurge in average cost burdens.

"Despite this accelerated improvement overall, the occupation picture remained cheerless. In a bid to dampen down the effects of the sharpest rise in source costs since April 2019, builders were minimizing headcounts to keep their individual heads above water resulting in another fall in task numbers,” explained Duncan Brock, group director at the Chartered Institute of Procurement & Source.

Looking ahead, one half of those polled in the study expect a growth in UK business activity through the coming year, the strongest amount of business optimism over the sector since January.