UK construction expanding

The UK construction industry is expanding, according to a number of reports, with the official data showing a 2013 fourth quarter fall in construction output seen as a blip in an otherwise buoyant upward trend.

Meanwhile, a survey has found that almost a third of businesses in the UK building and construction sector considered their trading environment to be riskier than it was six months ago.

Accountant PricewaterhouseCoopers (PwC) said that the UK construction industry was seeing its largest overall expansion since November 2003.

Chris Temple, UK engineering and construction leader, said, “Overall, this is more good news for the construction sector and a reflection of the upturn we are seeing across industry in the UK.”

He added, however, that despite housing activity reaching its steepest output for over 10 years, there was still a housing shortage.

“Residential building will need to increase above its current level to meet demand,” he said.

“With this in mind, the failure of suppliers to meet the rush in materials demand is a big worry. Anecdotal evidence points to optimism for continued sector growth over the coming months, but this will not be achievable unless delivery times are shortened and supply chain operations are improved.”

Markit Economic Research has also found that the UK construction sector has been achieving a near-record upturn across all sub-sectors, and it calculated that construction activity had been rising at its fastest rate since August 2007.

It said the construction industry had started 2014 with its best month for over six years – despite some parts of the country seeing record rainfall – according to PMI data for January.

PMIs (Purchasing Managers’ Indexes) have been developed in many countries to provide purchasing professionals, business decision makers and economic analysts with data to help them understand industry conditions.

The figures are based on monthly surveys of selected companies. Markit said these provided an advance indication of what was really happening in the private sector economy by tracking variables such as output, new orders, stock levels, employment and prices across the manufacturing, construction, retail and service sectors.

The Markit/CIPS Construction PMI rose from 62.1 in December to 64.6 (where 50 is no change) ­– its highest since August 2007 and signalling one of the strongest growth rates seen since the first collection of survey data in 1997.

Markit said the latest PMI reading was indicative of the construction sector growing at a quarterly rate of approximately 4%. It said this suggested that the surprise 0.3% fall in construction output indicated by official data in the fourth quarter merely represented a blip in an otherwise buoyant upward trend, with the data possibly having been affected by adverse weather.

It said the upturn was again led by house building, which increased for the 12th successive month, but it also reported surging growth for commercial construction and civil engineering – which it said pointed to increased spending by business on infrastructure, office space, industrial units and retail outlets.

Construction firms’ expectations about the year ahead hit their highest since September 2009, and inflows of new work rose at the fastest pace since August 2007, it said.

Increased risk

While the economy appears to be showing signs of tentative improvement, research conducted by business insurance specialist QBE found that almost a third (32%) of businesses in the building and construction sector consider their trading environment to be riskier now than six months ago.

The research, conducted among 400 businesses across the UK, found that the majority (54%) of businesses in the building and construction sector were taking risks now that they wouldn’t have taken two years ago in order to win new business.

QBE said that it was encouraging that the elevated level of risk taking among building and construction firms was accompanied by a high level of risk management performance.

Matthew Crane, managing director for UK and Ireland at QBE, said, “There is always a degree of risk involved in doing business. However, our research shows that economic circumstances are forcing businesses in the construction sector to expose themselves to higher levels of risk.

“While fortune can favour the bold, businesses should be considering how to manage these increased levels of risk,” he said.