UK construction sector recovery continues in December

According to the report from IHS Markit/CIPS, UK construction companies recorded a sustained rebound in business activity during December. Stronger order books helped to drive the recovery across the construction sector, with survey respondents often citing work on projects that had been delayed earlier in 2020. Higher levels of demand led to a slight rise in employment numbers and greater demand for construction inputs in December. However, stretched supply chains and delays at UK ports resulted in longer delivery times and the fastest rate of input cost inflation since April 2019.

The headline seasonally adjusted UK Construction Total Activity Index posted 54.6 in December, little-changed from 54.7 in November and above the crucial 50.0 no-change threshold for the seventh consecutive month. Increased construction activity primarily reflected another sharp rise in house building during December (index at 61.9). Commercial activity also expanded (51.2), but the rate of growth eased to its lowest since the recovery began last June. Civil engineering was the weakest-performing category (48.0), with activity falling for the fourth time in the past five months.

Total new orders increased at a strong pace in December, which extended the current period of expansion to seven months. Survey respondents noted improving client demand, alongside a boost from new business wins on construction projects that had been deferred at the start of the pandemic.

December data indicated a return to jobs growth in the construction sector, although the rate of expansion was only marginal. Additional staff hiring reflected forthcoming new projects and improved confidence about the business outlook. Exactly half of the survey panel (50%) forecast a rise in business activity over the course of 2021, while only 10% anticipate a decline, which signalled the strongest optimism across the construction sector since April 2017.