Construction activity shows strong growth

City A.M. Reporter
Activity in Britain's construction sector unexpectedly accelerated in March as orders rose at the fastest rate in 4-1/2 years and firms became more optimistic about the outlook, in another sign that Britain's economy is on track for recovery.

Following a surprise acceleration in manufacturing growth in March, the jump in the Markit/CIPS construction Purchasing Managers' Index to 56.7 from February's 54.3 also indicates that the need for more stimulus from the Bank of England is fading.

The construction PMI hit its highest level in 21 months and confounded economists' forecast for a slight fall.

"The good weather appears to have led to a surge in demand for construction projects in March, adding to the recent flow of good news which suggests the economy will have skirted a recession," said Chris Williamson, chief economist at survey compiler Markit.

Commercial construction remained the driver for the industry, though civil engineering and residential house building also picked up.

"The particularly encouraging news is that the improvement in confidence is generating more jobs, with employment rising modestly," Williamson said.

The survey showed the first increase in overall staffing levels in three months as companies took the most optimistic view of the next 12 months in nearly two years.

Together with a slump in manufacturing, a drop in construction output had been the driver of the contraction in the UK economy in the final quarter of 2011, which had triggered fears of a renewed recession.

But a number of business surveys and economic data have indicated that the economy returned to growth in the first three months of 2012.

The string of more upbeat news reduces the likelihood that the Bank of England will extend its quantitative easing purchases beyond the total of £325bn once it has completed the current £50bn tranche in May.