UK: Housebuilding leads construction sector back into growth
- Credit: PA
Britain’s housebuilding recovery spurred the first rise in construction output for seven months in May, raising hopes the sector’s slump may be easing.
The fastest increase in housebuilding work for more than two years lifted the closely-watched Markit/CIPS construction Purchasing Managers’ Index (PMI) to a reading of 50.8 in May ? above the threshold of 50 between growth and contraction.
It is the first positive PMI figure for the construction sector since last October and follows a reading of 49.4 in April, defying economists who had expected only a slight improvement.
But while housebuilding has been boosted by Government stimulus measures, the survey pointed to another fall in commercial building and civil engineering, where spending is drying up.
Tim Moore, senior economist at Markit, said that although construction appears to have “finally pulled out of a tailspin”, the sector is “worryingly reliant on residential building work for thrust”.
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Growth in construction output follows a 14-month peak for manufacturing output recorded in May, adding to hopes the two laggard sectors may soon begin contributing to the UK recovery.
The UK eked out growth of 0.3% in the first quarter, driven by Britain’s dominant services sector, and the Bank of England expects growth to increase to 0.5% in the second quarter.
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Housebuilders have been reporting surging interest as Chancellor George Osborne’s new Help to Buy package of loans and guarantees sends would-be buyers flocking to new developments.
Under Help to Buy, the Government lends buyers up to 20% of the value of a new build home, interest-free for five years.
Mortgage guarantees also aim to support another £130 billion of high loan-to-value mortgages, by shifting the risk of default away from lenders onto the State.
Help to Buy is on top of earlier schemes such as First Buy and New Buy, which aim to entice first-time buyers and promote housebuilding.
However, experts have warned Help to Buy may drive up house prices and outgoing Bank of England governor Sir Mervyn King has said it must be a temporary measure.
Today’s report showed companies citing stronger demand in the housebuilding sector, which saw “robust and accelerated” expansion.
Firms saw the first improvement in new business volumes for 12 months, while optimism also surged.
Around 40% of firms believe output will rise over the next year, compared with just 13% who expect a fall.
Despite this, staffing levels were flat and have failed to rise for the past three months, which firms blamed on subdued underlying demand.
Suppliers also gave their worst performance for almost six years, as lead times lengthened on low stocks and capacity shortages.
Costs also increased for the 40th successive month, driven by rising energy prices.
David Noble, chief executive of the Chartered Institute of Purchasing & Supply (CIPS), said: “Whilst confidence for the year ahead remains high, the poor performance of suppliers and flat levels of employment will serve as a reality check to construction and the wider UK economy.”
Howard Archer, chief UK and European economist at IHS Global Insight , had expected a reading of 49.6 in May for the construction sector and said it looks to have been a “decent” month for the economy.
“Construction companies will be fervently hoping that both the economy and the housing market see sustained improvement over the coming months, even if only limited, and that this stimulates building work,” he said.
“Nevertheless, the construction sector is clearly still in a fragile state,” he added.