GB: PMI Construction

Fri Feb 02 03:30:00 CST 2018

Consensus Actual Previous
Level 52.0 50.2 52.2

UK construction made a poor start to the year. The sector PMI weighed in at 50.2, just 0.2 points above the 50 growth threshold, a full 2 points short of its December reading and comfortably beneath market expectations. It was also a 4-month low.

Activity in the commercial and civil engineering subsectors essentially stagnated while residential building contracted to end a 16-month period of expansion. Aggregate employment saw its smallest increase in eighteen months and, ominously, new orders declined for the first time in four months. The only positive note was a more optimistic assessment of future growth with many firms expecting an increase in new projects in 2018.

Meantime, while input cost inflation dipped versus December it remained uncomfortably high on the back of increased charges for a range of raw materials. Sub-contractor usage increased at its fastest pace since November 2016.

Today's survey underlines the negative impact that Brexit uncertainty is having on the UK construction sector. Even the improvement in optimism left it at an historically weak level. The results should reduce the likelihood of an increase in Bank Rate at next week's BoE MPC meeting.

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.