GB: PMI Construction

Fri Mar 02 03:30:00 CST 2018

Consensus Actual Previous
Level 50.5 51.4 50.2

UK construction activity picked up a little momentum in February. At 51.4, the sector PMI was up 1.2 points versus January's 4-month low and stronger than market expectations. Even so, it was still below the 2017 calendar year average (52.3) and indicative of only a very sluggish rate of expansion.

Commercial construction led the way with its strongest gain since May last year. However, house building was soft again and still outperformed a weak civil engineering subsector.

New business posted a marginal decline and reduced demand contributed to some easing in pressure on supplier delivery times. These increased by the smallest amount since September 2016. Confidence in the year ahead declined to one of its lowest levels in the last five years.

Meantime, input cost inflation remained strong as prices paid for a range of raw materials rose further. Higher fuel bills and, potentially more significantly, increased wages were to blame. Nonetheless, the inflation rate was much softer than the five-and-a-half-year peak seen at the start of 2017.

Today's report suggests that UK construction is just about keeping its head above water. Brexit uncertainty remains a major hurdle in the path of new projects and rising costs continue to put pressure on profits. Normally this would reduce the likelihood of a near-term monetary tightening but, if the anecdotal evidence of faster wages growth proves accurate, Bank Rate should still be headed up again soon.

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.