Construction activity reaches nine-month high despite rising costs

Construction activity hit a nine-month high in November, but building costs have soared as the Brexit-hit pound continues to bite.

The closely-watched Markit/CIPS UK Construction purchasing managers' index (PMI) rose to 52.8 last month, up from 52.6 in October, and above economists' expectations of 52.2.

A reading above 50 indicated growth.

The PMI report continued to bounce back from a slump in the wake of the EU referendum result, with business activity and incoming new work growing at their strongest pace since March.

However, sterling's post-Brexit vote slump caused cost inflation to hit its highest level for five-and-a-half years.

Tim Moore, senior economist at IHS Markit, said construction companies were continuing to rebound from the downturn seen in the third quarter of this year.

"The brighter picture reflected another solid contribution from residential building and renewed growth in commercial work, which some companies linked to a resumption of projects that had been delayed after the Brexit vote.

"November's survey data revealed the strongest rise in overall new business volumes since March.

"However, lingering economic uncertainty and subdued investor sentiment meant that optimism towards the year-ahead outlook remained close to its lowest since early-2013."

Housebuilding activity was the best-performing area of the construction industry despite the pace of its expansion easing back to a three-month low.

Commercial activity ended a five-month slowdown to muster up a marginal rebound, while civil engineering remained the weakest area of activity.

Construction firms were also boosted by a number of projects put on ice after the Brexit vote coming back on stream.

But while the sector continued to take on more staff, business confidence was softer than during the first half of the year, as Brexit uncertainty remained at large.

Howard Archer, chief European and UK economist at IHS Global Insights, said November's sharp jump in input prices posed a "major concern".

"A substantial amount of building components and materials are imported and prices are being pushed up markedly by sterling's sharp overall drop."

He added: "While the latest surveys suggest that the construction sector should return to modest growth in the fourth quarter, there are still significant uncertainties for the sector going forward - particularly regarding some clients' willingness to commit to major projects.

"The clear possibility that the economy will slow appreciably over the coming months despite its current resilience and an uncertain outlook for the housing market are also concerns for the construction sector."