Slow growth for housing sector drags the British construction industry back but mega-projects boom

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Civil engineering projects like London's Elizabeth line boosted the construction industry (Source: Getty)

Weaker housing growth weighed on the British construction industry in March despite the civil engineering sector continuing to benefit from big infrastructure projects.

The construction purchasing managers’ index (PMI) dipped to 52.2 in March from 52.5 in February, according to IHS Markit.

The measure of growth in the sector hit its joint-lowest since September when the industry moved into expansion, indicated by a reading above 50.

Read more: Construction in crisis: Thousands of workers at risk after Brexit

However, almost half of the construction firms surveyed remain confident of a rise in business activity in the next 12 months, against only nine per cent expecting a decline in business. Construction firms account for around 6 per cent of the UK economy's output.

The survey also showed some signs strong inflationary pressures are easing from January’s highs. Producer price inflation rose by 3.7 per cent in the year to February as the devaluation of sterling raised import prices.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement and Supply, said: “Where the housing sector acted as the main engine of growth over the last four years, this month it was slower and stuttering, while overall purchasing activity in the construction sector was disappointingly tame, shackled by a lack of new orders and rising costs.”

However, the increase in work on civil engineering projects – such as London's Crossrail – was the fastest of the year so far, offsetting some of the weakness in housing and the business sector, which saw growth stay steady at four-month lows.

Read more: Construction industry beats expectations - but housebuilding flounders

Mike Chappell, global corporates managing director for construction at Lloyds Bank Commercial Banking, said: “Civil engineering continues to be the star performer in the sector thanks to a number of mega-projects in the works across the UK, some of which were given the green light before the EU referendum.”

He added: “With the triggering of Article 50 last week, the most significant issue on the industry’s radar remains labour. Almost 10 per cent of UK construction workers are from the EU and in London that rises to a quarter.”

Expansion in the construction sector had plummeted in the aftermath of the EU referendum vote, as confidence surveys showed a sharp decline in sentiment among both businesses and consumers. However, the retreat of Brexit-related anxieties and a strong economy have helped the sector improve, IHS Markit reported.

Read more: Housebuilders urge government to give Crossrail 2 the green light

Samuel Tombs, chief UK economist, Pantheon Macroeconomics, said: “According to Markit, optimism about the outlook for business activity over the next year picked up in March to its second-highest level since December 2015, despite the near-term weakness of demand.

"But with the pressure on households’ real incomes from rising inflation set to intensify this year and uncertainty about the UK’s future relationship with the EU unlikely to be cleared up until late 2018, it is hard to see how builders’ optimism is warranted. We continue to expect the construction sector to tread water this year."

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