Construction scales seven-month high but costs mount

A 'solid' hike in housebuilding work helped UK construction activity scale a seven-month peak last month despite the weak pound driving up costs.

The construction sector is facing a sharp rise in costs following the post-Brexit vote slump in sterling. Picture: Michael Gillen

The latest Markit/Cips purchasing managers’ index (PMI) for the sector revealed a reading of 52.6 in October – the fastest growth in activity since March and up from 52.3 in September. Any reading above 50 denotes growth.

Housebuilding provided the main support, with the pace of expansion in residential construction work only slightly weaker than an eight-month high seen in September.

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The report came as housebuilder Persimmon reported a buoyant third quarter and downplayed the potential impact from Britain’s vote to leave the European Union. The company described trading in the weeks following the Brexit decision as “encouraging”, adding that customer activity strengthened at the start of autumn. It has some £757 million of forward sales reserved beyond 2016, an increase of 4 per cent compared with last year.

Persimmon told investors: “The market has continued to benefit from resilient consumer confidence and strong lender support. The reduction in the bank base rate in August has resulted in more attractive mortgage products further supporting affordability.”

However, it added that it remains cautious with respect to new land investment in light of the uncertainty unleashed by the potential impact of the EU referendum.

Meanwhile, the PMI survey pointed to some clouds on the horizon, with growth in new orders across the wider sector dropping since September – hurting confidence among construction businesses.

The slump in sterling since June’s vote has also sent builders’ costs spiralling, with input prices rising at one of the fastest rates seen over the past five years.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that while the latest data signalled a further bounce-back since the Brexit vote, it was “premature to conclude that the sector is back on a recovery path”.

IHS Global Insight’s chief European and UK economist Howard Archer said: “We believe housing market activity is likely to be increasingly pressurised in 2017 by heightened uncertainty constraining consumer confidence and willingness to engage in major transactions, as well as hampering economic activity.”