Growth in the UK’s construction industry was stronger than expected in February – but housebuilding floundered

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Growth in the UK's construction sector was stronger than expected in February, figures published today showed – but housebuilding struggled.

Markit's purchasing managers' index for the sector rose to 52.5 in February, up from 52.2 in January – and beating forecasts it would stay flat. Any figure below 50 denotes a contraction.

However, activity in the residential sector, traditionally the strongest part of the industry, grew at its slowest pace in sx months, while commercial building declined for the first time since October last year. Markit also noted that the figure was subdued in comparison with the industry's long-term average. 

The news came a day after manufacturers said growth had fallen to a three-month low in February. 

Construction companies were, nevertheless, upbeat about their prospects, with 48 per cent expecting a rise in business activity and only 13 per cent expecting a decline. That's more optimism than usual, Markit said – although weaker than January's 13-month peak.

“February’s survey data highlights that the UK construction sector has rebounded from its postreferendum soft patch but remains on a relatively slow growth trajectory," said Tim Moore, senior economist at IHS Markit. 

"Weaker momentum in the house building sector was a key factor weighing on construction growth, alongside a renewed fall in work commercial projects."

The stronger reading for the construction sector adds to economists' expectations for the reading in the crucial services sector to continue its steady expansion at the start of the year, although consensus estimates showed a possible dip in the rate of expansion.

Paul Hollingsworth, an economist at Capital Economics, predicts a slight increase in the reading to 55.5 points in February. The survey "is likely to show that the sector has held up relatively well in the first quarter, adding to other evidence suggesting that the economy as a whole has maintained a decent amount of momentum," he said.

The construction index has benefited from this industry-wide strength, after housebuilders posted strong end-of-year results. Persimmon announced profits rose almost a quarter in 2016, while Barratt said pre-tax profits had risen almost nine per cent in the six months to the end of December. 

“For listed contractors, the reporting season revealed that firms are in generally good health," said Max Jones, global corporates relationship director for construction at Lloyds Bank. 

"In this sense, the years since the recession – with more focused strategies, increasingly disciplined approaches to contract bidding and improving margins – appear to be paying off.

"Meanwhile, with next Wednesday’s Budget approaching, our conversations with clients suggest contractors aren’t pinning their hopes on new flagship projects given the long lead-times between announcements and work being awarded."