Construction growth eases to three-month low in December

Construction PMI
PMI showed continued growth

December PMI® data pointed to another solid increase in business activity across the UK construction sector, but the rate of expansion slipped to its lowest since September.

On a more positive note, the number of construction firms reporting supplier delays dropped from 47% in November to 34% in December. Meanwhile, around 5% of the survey panel reported shorter lead times among vendors (up from 4%). The resulting index signalled the least marked downturn in supplier performance since November 2020.

Fewer supply shortages contributed to the slowest rate of input price inflation for nine months.

The headline seasonally adjusted IHS Markit/CIPS UK Construction PMI® Total Activity Index posted 54.3 in December, to remain above the crucial 50.0 no-change threshold. However, the latest reading was down from 55.5 in November and signalled the weakest rate of expansion for three months. Some survey respondents noted that tighter pandemic restrictions and rising COVID-19 cases had acted as a brake on recovery, especially in the commercial sector.

Residential construction activity saw the strongest growth (index at 55.3) and was the only category to gain momentum in December. Commercial building lost its position as the bestperforming segment, with the recovery easing to its lowest since September (index at 53.6). Meanwhile, civil engineering activity decreased slightly at the end of 2021 (index at 49.1), which ended a nine-month period of expansion.

Customer demand was relatively resilient in December, despite some reports citing delayed decision-making due to the Omicron variant. In fact, the latest rise in overall new order volumes was the strongest since August. Higher levels of new work have now been recorded for 19 consecutive months.

A sustained rebound in construction orders helped to boost employment numbers during December. The rate of job creation eased only slightly since November. Survey respondents often commented on extra staff hiring as part of new protect starts and long-term expansion plans.

Higher fuel, energy and raw material prices continued to push up average cost burdens across the construction sector in December. However, the overall rate of inflation eased for the fourth month running to its lowest since March.

An improved alignment between demand and supply helped to soften inflationary pressures at the end of 2021. Purchasing activity increased at the slowest pace for three months, while supplier lead times lengthened to the least marked extent since November 2020. Where longer wait times were reported, this was mostly linked to international shipping delays and shortages of haulage drivers.

Looking ahead, just over half of the survey panel (51%) forecast a rise in business activity during 2022, while only 9% predict a decline. Although signalling upbeat sentiment for the year ahead, the degree of optimism was the joint-lowest reported since January 2021.

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