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Commercial activity pushes up construction output in December

The fastest growth in commercial activity for more than 14 months helped construction activity rebound in December, according to data from the Markit/CIPS Construction PMI.

As reported in Construction News, the index, which measures construction activity, stood at 57.8 in December, up from the seven-month low of 55.3 seen in November, and still well ahead of the 50.0 ‘no change’ level.

Commercial activity in December grew at its fastest rate since October 2014, while housing output rebounded significantly from the 29-month low recorded in November. Respondents to the survey pointed to new invitations to tender and growth in the flow of development opportunities in the housing sector.

In contrast, civil engineering activity dropped marginally in December compared with the previous month, ending seven consecutive months of growth in the sector.

The rise in new work across all sectors during December was the second-fastest seen since July 2015, while job creation picked up after hitting its lowest point for more than two-and-a-half years in November.

Just over half of companies surveyed – 51 per cent – expected a rise in business activity during 2016, while only 7 per cent forecast a reduction. This represented the lowest level of positive sentiment since February 2015.

Costs also appeared to be moderating for contractors, with input cost inflation reaching its lowest point for eight months in December. Subcontractor rates meanwhile increased at their slowest pace since August 2013.

Commenting on the data, Lloyds Bank Commercial Banking global corporates director for construction Max Jones said: “Commercial construction is beset by uncertainty in the regions and price pressures in London and the South-east, yet housebuilding remains boosted by government measures to increase demand.

“Feedback from clients suggests many are relatively sanguine about external headwinds. Many large contractors have little in the way of exposure outside the UK and therefore feel the potential of a ‘Brexit’ would not impact them either way.

“Larger firms will also be less affected than most by the introduction of the living wage, and an interest rate rise is likely to be accommodated fairly comfortably by a sector which is generally well-hedged and has comparatively low levels of debt on balance sheets.”

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