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UK construction sector slows in January 2017

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World Cement,

The UK construction sector slowed in January 2017 to its weakest level since the post-Brexit recover began in September 2016, according to the latest Markit/CIPS UK Construction Purchasing Managers Index.

The seasonally-adjusted index registered 52.2 in January, down from 54.2 in December 2016, as all three construction sector – residential, commercial and civil engineering – recorded softer growth at the start of the new year. The residential sector remained the best performing category, although its latest growth was the weakest for five months.

Slower growth but industry remains positive

The slower business growth reflected a moderation of new order gains at the start of the year, according to IHS Markit. Yet despite this, survey respondents remained confident in the year ahead.

Employment in the sector also showed more positive trends with employment growth in the construction sector at its highest in eight months and subcontractor usage rising at its steepest rate since December 2015.

“New business volumes also expanded at a softer pace in January, but there were more positive trends in terms of staff hiring and business optimism,” said Tim Moore, Senior Economist at IHS Markit. “A number of survey respondents commented on a boost to their workloads from the resilient economic backdrop, alongside a strong pipeline of new project starts in 2017.”

“Construction companies continue to remain positive about future growth opportunities,” said Corry Bourke, Director at Urban Exposure, a residential development finance provider, adding that government support for home development and reforms to planning permission procedures could further boost the sector.

Brexit casts its shadow

Yet Brexit does continue to post a threat to the outlook. Cost pressures from the weak pound continued to be a drag on the sector, as exchange rate depreciation against the euro and the US dollar resulted in the highest rate of input cost inflation since August 2008.

This cost inflation remained a “dark cloud on the horizon”, according to David Noble, Group CEO of the Chartered Institute of Procurement & Supply (CIPS). “Material shortages, lengthening delivery times and supplier performance, the weakest since June 2015, could become a roadblock to the sectors continuing growth.”

Urban Exposure’s added Bourke that the actual process of leaving the EU had not yet begun – and that a great deal of uncertainty remained around Brexit.

“There are still so many unknowns that are likely to impact confidence and put a halt to new projects,” Bourke said. “This slowdown in growth may be a reflection of building uncertainty in the lead up to triggering Article 50.”

Noble too was cautious in his conclusions, noting that the short-term outlook was positive “as long as economic conditions remain supportive and firms are able to control their rising costs.”

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