Construction output continues to fall despite continued house-building performance

cipsGrowth in the construction sector continued to decline in December 2014 despite persistently strong performance in house-building, according to the latest Construction PMI from Markit and the Chartered Institute of Procurement & Supply (CIPS).

Overall output growth continued across the industry, but at 57.6 – down from November’s 59.4 – December’s PMI signalled the least marked increase in construction output for 17 months. This was significantly lower than the expected figure of 59, but remains higher than the 50.0 threshold marking growth.

Residential construction remained the strongest performing area, although the pace of expansion dropped to its lowest point since June 2013. Commercial construction also increased at a solid pace, although at a slower rate than the previous month. However, civil engineering performance decreased, ending the 17-month period of expansion experienced by this category of construction.

Despite the reduced performance of house-building, the sector has remained the leading force behind the resurgence of the UK construction industry. Tim Moore, senior economist at Markit and author of the PMI, said:

“Another strong expansion of house-building activity ensured that the sector continued to perform impressively overall. Indeed, over the course of 2014, UK construction firms recorded the strongest calendar year of residential building since the survey began in 1997.”

New business volumes continued to increase in December, with anecdotal evidence pointing to sustained demand for new residential developments. However, the rate of overall new order growth slowed for a sixth successive month to its weakest point since June 2013. This continued – albeit slower – growth in new work has led a number of firms to report worsening skills shortages across the construction sector, while sub-contractor availability continued to decrease at a sharp and accelerated rate in December.

David Noble, chief executive of CIPS, said:

“The sector is still expanding with the index posting at a higher level than the longer-term average, and led primarily by residential development – but it has become a victim of its own success as it struggles to keep up with its own speed of recovery. With increases in new business come pressures on the availability of talented staff and a squeeze on the performance of supply chains.”

Richard Threlfell, head of infrastructure, building and construction at KPMG, believes that skills shortages will be the biggest issue facing the industry over the coming months. He said:

“As early as April 2015, the delivery of the UK construction pipeline will hit a constraint imposed not by lack of political will or funding but for lack of a sufficiently large and trained workforce.

“The industry is failing to hire sufficiently fast, and is failing to train in sufficient volume, the workforce it needs.”

Concerns surrounding issues such as this, combined with uncertainty regarding the upcoming General Election, have weighed on the confidence of the construction industry moving forward. While more than half of those surveyed anticipate a rise in business activity in 2015, this was the lowest balance of firms expecting growth since August 2013.

However, staff recruitment remained high at the end of 2014, suggesting that confidence remains that new work will continue to build throughout 2015.

Chris Temple, engineering and construction leader at

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