UK construction sector returns to growth
Increase in house building boosts sector, PMI survey shows
The UK’s construction sector emerged from a technical recession in October, but optimism about the future fell to its lowest level for almost five years, according to a survey of purchasing managers working in the industry published on Thursday.
Official economic growth data, published last week, showed that Britain’s construction sector contracted for two consecutive quarters but the latest IHS Markit/CIPS PMI indicates that it has returned to growth.
The PMI increased to 50.8 in October from 48.1 in September. A figure above 50 indicates growth. Analysts were expecting the survey to remain unchanged during the month.
British construction has struggled due to a decline in commercial office building during the past year, and a number of existing big infrastructure projects have come to an end. However, housebuilding has been boosted by the government’s help-to-buy equity loan programme.
Tim Moore, associate director at IHS Markit, said: “Greater house building was the sole bright spot in an otherwise difficult month for the construction sector. Sustained declines in civil engineering and commercial activity meant that large areas of the building industry have become stuck in a rut.
“The recent soft patch for civil engineering activity has been the most severe for around four-and-a-half years, linked to a shortfall of new contracts to replace completed work on infrastructure projects.”
The survey showed that confidence about the rate of activity in the year ahead dropped to its lowest level since December 2012. Respondents said they were worried about the lack of new projects in the pipeline.
The decline in infrastructure spending is one of the most concerning aspects of the survey, said Noble Francis, economics director at the Construction Products Association.
“We keep hearing government announcements and plans for infrastructure spending of hundreds of billions of pounds, yet the reality on the ground is that the delivery of infrastructure projects and programmes doesn’t match the government’s announcements, especially within roads and rail construction,” he said.
An analysis of investment spending by the Office for National Statistics, also released on Thursday, found that the UK spent the lowest proportion of national income on investment of any developed economy.
Between 1997 and the second quarter of 2017 the UK spent an average of 16.7 per cent of gross domestic product on investment. The second lowest country examined by the ONS was Italy, which spent 19.6 per cent of national income on investment.
This means the UK had the lowest proportional spending of any country in the Organisation for Economic Cooperation and Development, a group of rich countries.
Most investment spending in the UK is in the construction sector, either on office blocks, infrastructure or housing. The remainder is on machinery, transport equipment and intellectual property products, such as software.
The ONS noted that the UK’s specialism in services means it would expect less to be spent on investment than in countries where there is more capital-intensive manufacturing. The figures have also been criticised by economists for not capturing certain kinds of research and development spending in professional services.
“Analysing assets specifically, more advanced economies tended to invest more in intellectual property products and dwellings rather than machinery, equipment and buildings,” the ONS said.
“However, stronger manufacturing economies in the G7 still invest a relatively large proportion in these assets, whereas the UK does not.”
Government investment spending was the second lowest in the G7 group of rich countries during the period analysed. The UK spent 2.4 per cent of national income on government investment, compared with 2.2 per cent in Germany.
But Britain’s private sector spent the least on investment of any rich country, just 14.3 per cent of GDP, compared with 18.3 per cent of GDP by the private sector in Germany.