UK construction sector grows at fastest pace in nine months despite inflation pressures

Britain's construction sector fared better than expected in December, expanding at the fastest pace in nine months as new orders grew at the quickest rate in almost a year, despite sharp inflationary pressure.

The closely watched Markit/CIPS UK Construction Purchasing Managers' Index stood at 54.2 in December, compared with analysts' expectations of a 52.6 mark, and despite the 52.8 reading recorded in November.

A reading above the 50.0 mark indicates growth, and December's figure was the fastest expansion since March 2016.

This latest reading is also well above July's seven-year low, a month after Britain's vote to leave the EU on 23 June, and marked the fourth consecutive month of growth.

New order volumes increased at the fastest pace since January 2016, with stronger demand patterns leading to sustained job creation and a broad-based upturn in business activity in December 2016.

While the latest rise in employment was the fastest since May, it remained below the average recorded since mid-2013, when the jobs rebound in the sector began, Markit added.

Paul Trigg, construction specialist and assistant head of risk underwriting at Euler Hermes, warned the sector was yet to feel the full impact of Britain's exit from the European Union.

"Business confidence across construction remains high. But the industry is yet to feel the full brunt of Brexit and there are concerns the current work pipeline will only carry contractors in the short-term.

"Residential and civil engineering should remain buoyant heading into 2017, but we expect the fall in GDP growth to hit commercial property hardest. Plummeting levels of foreign direct investment are expected to curb office development, which will hurt contractors as competition ramps up and squeezes low industry margins even further," said Trigg.

Meanwhile, there was less positive news on the inflation front. The report showed the construction industry continued to face cost pressures as suppliers passed on higher imported raw material prices, meaning the latest increase of input costs was the steepest on record since April 2011.

"UK construction companies noted that the weaker sterling exchange rate had resulted in higher costs for a wide range of imported materials, while some also reported that forward purchasing of inputs had led to depleted stocks among suppliers," said Tim Moore, senior economist at IHS Markit.

Data released on Tuesday, showed Britain's manufacturing sector expanded at the fastest pace in two-and-a-half years in December. The Markit PMI for the sector rose from 53.4 in November to 56.1 last month, marking the fifth consecutive month of expansion and exceeding analysts' expectations for a 53.3 reading.