UK construction PMI beats expectations, returns to growth

The pace of UK construction unexpectedly improved in September as the sector returned to growth.

The Markit/CIPS UK construction purchasing managers’ index rose to 52.3 from 49.2 in August, above the 50 mark that separates contraction from expansion for the first time in four months.

Economists had been expecting a drop to 49.0.

The main driver behind the push higher was a solid rebound in residential activity, which boosted overall construction output in September. New orders rebounded, ending a four-month period of sustained decline.

Tim Moore, senior economist at Markit, said: “UK construction companies moved back into expansion mode during September, led by a swift recovery in residential building from the three-anda-half year low recorded in June. Resilient housing market conditions and a renewed upturn in civil engineering activity helped to drive an overall improvement in construction output volumes for the first time since the EU referendum.

“A number of survey respondents noted that Brexit-related anxiety has receded among clients, although it remained a factor behind the ongoing decline in commercial building work.”

The data helped to lift the pound off a 31-year low of $1.2766, as the currency continued to be weighed down by Prime Minister Theresa May's vow to trigger Article 50 by March.

"The next support level is at 1.25 and the resistance is at 1.31," said Naeem Aslam, chief market analyst at Think Markets.

Howard Archer, chief UK and European economist at IHS Global Insight, said it was a “relatively decent survey” that offers reassurance on the sector, albeit not matching the impressive corresponding survey on manufacturing.

“While the construction sector is still hardly racing ahead, a pick-up in orders in September supports hopes that activity will keep growing.

“The government will be particularly pleased to see housebuilding returning to growth in September and at an 8-month high given the housing market shortage, although much needs to be done on this front. Indeed, the Chancellor is prioritising housebuilding initiatives as he looks to support the economy as the Brexit process gets underway.”

On Monday Chancellor Philip Hammond announced that he will prioritise spending on new homes.

Hammond said the government will set aside around £2bn to create a new ‘Accelerated Construction’ scheme to fund the building of up to 15,00 new homes by the end of the current parliament in 2020.