GB: PMI Construction

Wed Apr 04 03:30:00 CDT 2018

Consensus Actual Previous
Level 51.0 47.0 51.4

UK construction activity unexpectedly slumped in March. The sector PMI dropped more than 4 points to 47.0, well below the 50 growth threshold and its weakest reading since July 2016. However, anecdotal reports suggest that much of the fall was due to unusually heavy snowfall across large parts of the country. If so, April should see a solid rebound.

Civil engineering was particularly badly hit with output falling at the steepest rate in the last five years. Commercial building also declined leaving residential construction as the only major sub-sector to see positive growth, although the increase here was just marginal. Aggregate new business fell more quickly than in any month since July 2016 but this did not prevent a further expansion in headcount and growth here hit a 3-month high. Indeed, business expectations for the year ahead were actually stronger than in February.

Meantime, subcontractor availability continued to decline and this contributed to the strongest rise in their average prices charged since September 2017. Nonetheless, input cost inflation still eased to a 20-month low as the effects of sterling's depreciation diminished further.

The March PMI report should prove just a temporary blip. Crucially, construction companies remain relatively upbeat, albeit still cautious about the economic outlook in general and Brexit in particular. As such, any impact on next month's BoE MPC meeting is likely to be less than the headline PMI might suggest.

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.