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UK construction PMI reaches 56.7 in March 2012

New orders increased significantly.

The seasonally adjusted UK construction purchasing managers’ index (PMI) reached 56.7 in March 2012, up from 54.3 in February, according to a survey of over 170 construction firms conducted by the Markit and the Chartered Institute of Purchasing & Supply (CIPS).

A PMI of above 50 implies that that sector is experiencing growth, and below hints at contraction.

Chris Williamson, chief economist at Markit, said:

The good weather appears to have led to a surge in demand for construction projects in March, adding to the recent flow of good news which suggests the economy will have skirted a recession.

An increase in new work intakes supported the latest increase in activity, and also led to a modest amount of job creation. 

Williamson added:

Construction companies reported the largest monthly rise in new orders for four-and-a-half years, driving building activity higher at the fastest rate since mid-2010. Coupled with increasing activity recorded in the first two months of the year, this bodes well for the sector’s contribution to overall growth of the economy in the first quarter and will raise hopes that the country has avoided a slide back into recession.

In line with expectations, purchasing activity in the sector expanded at the fastest pace for over four years in March, while suppliers’ delivery times lengthened again. Vendors continued to hold low inventories.

Input prices faced by UK construction companies increased sharply in March, with higher raw material costs, particularly for oil, shouldering a lot of the blame.

Meanwhile, confidence in the country’s construction sector continued to strengthen.

Williamson concluded:

Looking ahead, the lack of big new projects such as Crossrail and the Olympics means expectations about the year ahead continued to run well below the pre-crisis peaks, but business confidence nevertheless reached the highest for nearly two years, driven up by expectations of increases in new order intakes and improving client optimism.

The particularly encouraging news is that the improvement in confidence is generating more jobs, with employment rising modestly.

As well as increase in employment in the UK construction sector, both output and new orders have substantially improved in March 2012. However, the rate of job creation was only modest. Increased usage of sub-contractors was also indicated. The latest rise in new business was the sharpest since September 2007.

With rising tender opportunities, new marketing initiatives, and anticipation of company expansions, the UK construction firms were optimistic in March that activity would rise over the next year.

Positive sentiment strengthened to a 22-month high, indicating that confidence continued to improve. Nonetheless, optimism remained below the historical average.

David Noble, CEO of CIPS, said:

The unexpectedly strong rise in new orders has been a boon to the confidence of construction purchasing managers, which reached a 22-month high in March, albeit was still lower than pre-recession levels.

Driven by stronger growth in activity in the commercial and civil engineering sectors and positive sounds from customers at the end of what has been a much brighter first quarter for construction, the modest rise in employment shows that companies are now starting to develop an appetite for expansion.

However, some supply side constraints remain, with suppliers unable to speed up the delivery of materials. Furthermore, continued upward pressure on input prices remains.