UK construction regained a little momentum in February. Following a surprisingly sharp decline to a 5-month low in January, the sector PMI rose a gentle 0.3 points to 52.5, in line with both market expectations and moderate growth of business activity.
The limited mid-quarter improvement was led by civil engineering which replaced housebuilding as the best performer of the three main categories. In fact, residential construction saw its smallest rise in half a year while commercial building declined for the first time since October 2016.
Even so, confidence across the sector remained firm and above that seen during the second half of 2016. This was reflected in another healthy addition to headcount and another increase in sub-contractor usage that saw availability drop more sharply than in any month since January last year. Further evidence of capacity problems was apparent in the largest deterioration in vendor performance since the middle of 2015. Meantime, input costs recorded their second steepest rise since August 2008.
February's headline PMI was well below the 54.2 post-Brexit vote peak recorded in December and the last couple of months would seem to signal a shift to a slower growth trajectory. However, this is hardly surprising and so long as the sector continues to expand at or around current rates, the BoE should not be unduly worried.
The Construction Purchasing Managers' Index (PMI) provides an estimate of business activity in the UK construction sector for the preceding month 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 gross domestic product. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The data are compiled by the Chartered Institute of Purchasing and Supply (CIPS) and Markit.
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.