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UK construction PMI touches nine-month high in December, costs jump
January 4, 2017 / 9:38 AM / 9 months ago

UK construction PMI touches nine-month high in December, costs jump

Cranes are seen on a construction site in London's financial district of Canary Wharf, Britain December 1, 2016. REUTERS/Kevin Coombs

LONDON (Reuters) - Activity in Britain’s construction sector expanded at the fastest rate in nine months in December, boosted by more house building, but sterling’s weakness drove the biggest rise in costs in over five years, an industry survey showed on Wednesday.

The Markit/CIPS purchasing managers’ index (PMI) rose to 54.2 in December, its strongest since March and well ahead of expectations in a Reuters poll for it to hold steady at November’s reading of 52.8.

Coupled with Tuesday’s strong manufacturing PMI, the figures offer signs that Britain’s economy maintained momentum through the end of 2016, though the picture will become clearer once data for the far larger services sector appear on Thursday.

But the figures also highlight the challenge Britain will face this year from sterling’s plunge after the June vote to leave the European Union, which has pushed up business and household costs.

Markit said building costs rose last month at a rate not seen since April 2011, and that companies reported shortages of materials, possibly because of extra demand as they stocked up to beat further price increases.

“UK construction companies noted that the weaker sterling exchange rate had resulted in higher costs for a wide range of imported materials,” survey author Tim Moore wrote.

Britain looks to have been one of the strongest-performing advanced economies last year, but most economists predict a slowdown in growth to 1.1 percent this year from double that in 2016 as inflation climbs.

House building accelerated in December, growing at the fastest rate since January, and may get extra momentum if government plans announced on Monday to build 200,000 new rural homes overcome local planning restrictions.

Civil engineering staged its biggest pick-up in growth in nearly two years, Markit said, but demand for commercial projects such as factories and shops remained lacklustre.

This reflected “an ongoing drag from subdued investment spending and heightened economic uncertainty,” Moore said.

The Bank of England has identified weaker business investment - caused by uncertainty about the terms on which Britain will leave the EU - as one of the main channels through

which growth will weaken this year.

The latest official figures show that British construction output shrank by 0.6 percent in the three months to October, slightly less of a decline than in the previous three month

period.

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