The UK construction industry enjoyed another very good month in February if the sector's latest PMI survey is anything to go by. At 60.1, the headline index was up a point versus its unrevised January reading, above expectations and at its highest level in four months. Construction activity has now been expanding for some twenty-two consecutive months.
Residential, commercial and civil engineering all saw faster rates of growth and the outlook was not harmed by the largest increase in new orders since October 2014. However, strong demand for materials and shortages of supplies combined to produce a steep and accelerated rise in input prices while increased use of sub-contractors saw their charge rates register the sharpest gain on record. Vendor delivery times lengthened the most in four months.
In fact today's buoyant findings might have been stronger still but for some indications that potential business had been deferred by caution ahead of the upcoming general election (May). Even so, more than half of respondents anticipate further growth of business activity over the coming year.
The BoE MPC's hawks will home in on the increasing pressure in the sector's wages market and developments here will need watching closely in coming months. For now, economy-wide earnings growth is still not an issue for inflation but today's survey findings provide additional reason for keeping a wary eye on the monthly labour market reports.
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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