UK construction continued to expand at a very healthy clip in December. However, at 57.6, the sector PMI was below market expectations and November's unrevised 59.4 mark and also touched its lowest level since July 2013.
The headline index masked somewhat divergent trends across the three principal subsectors. Hence, while both commercial construction and, in particular, housing activity remained robust, albeit down on their respective mid-quarter growth rates, civil engineering declined for the first time in eighteen months. Aggregate new business again rose at a solid pace but also slowed for a sixth successive month to post its smallest gain since June 2013.
Nonetheless, activity rates were still easily strong enough to ensure another sharp rise in overall headcount which, while also short of the previous month's pace, was again well above the historical norm. Indeed, sub-contractor availability decreased at an accelerated rate and pay rates in this category recorded a new series high. Optimism about the coming year also held up well but still saw its lowest level since August 2013.
Meantime, overall cost pressures eased to a 7-month low, largely on the back of falling oil prices.
The construction boom may be over but the sector looks poised to start 2015 on a very solid footing. Indeed, although growth is clearly well past its peak it remains strong enough to support supply chain pressures and skills shortages have become more of an issue. To this end, wages are rising and the BoE MPC will be watching future developments especially closely.
The Markit/CIPS UK Construction PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 170 construction companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on the regional and industry contribution to GDP. Unlike other PMIs, this PMI focuses on one industry, namely UK construction.
The survey is based on techniques successfully developed in the USA over the last 60 years by the National Association of Purchasing Management. It is designed to provide one of the earliest indicators of significant change in the economy. The data collected are not opinion on what might happen in the future, but hard facts on what is actually happening at 'grass roots' level in the economy. As such the information generated on economic trends pre-dates official government statistics by many months.
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