Housing output highest for eight months – but optimism fades

Housing output rose at the fastest rate for eight months in February despite optimism in the wider construction industry about the months ahead declining.

The latest IHS Markit/CIPS survey of construction companies shows housing activity  rose from 54.3% in January to 61.5%, overtaking commercial activity – which recorded 58.4% – as the sector with the highest output.

Civil engineering activity also rose from 53.2% to 57.5% month-on-month, its highest level since last June.

Total construction activity rose to 59.1%, also the highest level seen since last June.

However, the survey also revealed that the wider construction industry is less optimistic than previously about output increasing over the year ahead, with firms citing the “impact of rising costs and supply shortages”.

A total of 48% of the 150-strong panel forecast increased activity for the rest of this year, the lowest figure since January 2021. Only 9% predicted a fall however.

Usamah Bhatti, economist at IHS Markit, said: “Despite continued volatility in price and supply conditions, the overall rate of new order growth accelerated from January to reach the fastest since last August as client confidence improved in line with economic activity as plan B restrictions were fully lifted.

“Nonetheless, widespread reports of shortages of materials and labour continued to plague the UK construction sector, while rising input costs placed further strain on businesses.”

Responding to the figures, Mark Robinson, group chief executive at Scape, said the growth in output was “proof the industry is back in its pre-pandemic groove”. 

However, he added: “The conflict in Ukraine and its impact on global energy prices will likely intensify the inflationary pressures, which adds another worry for project delivery at a crucial time – when the construction sector is gearing up for its busy spring and summer season.

“It’s important that contractors closely monitor the health of their supply chain and help them navigate effects of increasing costs, particularly through early engagement and constant dialogue.”

Brendan Sharkey, head of construction and real estate at MHA, said construction has “got a good wind in it sails” but also said inflation remained a “real menace”.

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He added: “The ultimate cause of the kind of inflation the sector dreads is the rising price of energy with oil and liquefied natural gas (LNG) prices now sky high. As margins are thin in the construction sector, there is a real prospect inflationary pressures, without proper controls, will put an end to some businesses.

“Brexit was a trauma for the sector, but people have now adapted to an extent to the new environment. Businesses are paying more attention to their supply chains and understand the need for diversification more than they did.

”This means the sector might be slightly better placed to weather disruption flowing from the Russian invasion of Ukraine than it would have been had Brexit not happened.”

Max Jones, a director in Lloyds Bank’s infrastructure and construction team, said: “The sector is not without challenges. Many firms are building in contingency plans for the cladding taxes on residential work that come into force in April, while continuing to invest in ESG, including new technologies and recycling capabilities.

”Overall, there is a sense among contractors that they have weathered the economic storms of the past two years well, but there will still be obstacles to overcome in the coming months.”