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UK Construction: Strongest Growth for 11 Years

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UK Construction: Strongest Growth for 11 Years

By - Thursday 14 August 2014

According to data from Markit, the UK's construction sector recorded a rating of 62.4 on the purchasing managers' index (PMI). Any figure above 50 indicates growth and the construction sector includes not just residential but also commercial building and civil engineering.

The sector's growth beat expectations by continuing to improve strongly throughout 2014, bringing activity in the housing sector to its highest level since 2003.

Conversely, last week's manufacturing PMI was disappointing, recording the slowest growth for a year, placing further importance on expansion in the construction sector to boost GDP.

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Large-scale building projects drive expansion in UK construction sector

Tim Moore, senior economist at Markit said: "July's figures suggest the UK construction sector is enjoying its strongest cyclical upswing since the global financial crisis, while a new record rise in employment highlights that construction firms are increasingly confident about the sustainability of the upturn."

Largest Infrastructure Projects in Europe are Work in Progress in UK

Infrastructure development was a key driver behind the latest improvement underpinned by increasing activity in the commercially-driven construction sectors.

After a decade of budget cuts in public spending, investment from the private sector is improving, providing stability and a growth engine to the construction industry as a whole.

Private residential activity is improving to a significant enough degree that an 8% decline in the value of social housing starts over the first quarter of 2014 is being compensated for by the surge in private activity, certainly around London where house prices are rising ahead of other metropolitan and provincial areas.

The biggest surge in activity within UK construction was from the retail sector, posting a huge 24% increase in starts by value year-on-year. The industrial and office sector also experienced increased starts, suggesting that overall improvement in the UK economy is boosting confidence amongst retail clients to invest in capital works.

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The skyline of the UK's largest cities is evolving rapidly

Current infrastructure projects include the Crossrail railway project which at a cost of £14.8bn is the largest ever seen in the UK. Another project waiting for the go-ahead is High Speed Rail 2, a railway expected to provide a service to 1 in 5 of the population and at an estimated cost of £43bn, set to overtake Crossrail as the largest infrastructure project in Europe.

In the retail sector, Q1 2014 saw growth in investment turnover of 36% on the first quarter of 2013, rising from £1.4bn to £1.9bn. The figures were taken from 28 shopping centre deals nationally including: The Royals in Southend; Eastgate Centre Basildon; Middleton Grange in Hartlepool and Four Seasons in Mansfield. Continued demand drives further expansion in the retail sector.

Construction Growth Crucial to UK's Recovery

The PMI also showed that construction companies hired new staff at the fastest rate since the survey began in 1997.

Residential construction is also on the increase in the UK, as accelerating house prices, low interest rates and strong demand continue to encourage developers to launch new housing projects.

Although the construction industry contributes a relatively modest 6% to economic growth, the sector provides valuable insight into overall economic health of a country. With further growth expected in the sector through to 2020, construction could prove to be pivotal in stimulating a stronger, more sustainable economic recovery in the UK.

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