IHS Markit/CIPS Construction PMI (Feb.) - Capital Economics
UK Commercial Property

IHS Markit/CIPS Construction PMI (Feb.)

UK Commercial Property Data Response
Written by Andrew Wishart
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The rebound in the construction PMI in February suggests that the dip in activity in January was due to heavy rainfall rather than any deterioration in demand. While residential activity continues to outperform there was also an encouraging pick up in commercial activity, albeit from a low base.

Construction sector’s strong innings resumes after rain delay

  • The rebound in the construction PMI in February suggests that the dip in activity in January was due to heavy rainfall rather than any deterioration in demand. While residential activity continues to outperform there was also an encouraging pick up in commercial activity, albeit from a low base.
  • The rebound in the construction PMI from 49.2 in January to 53.3 in February suggests that the dip in January was due to heavy rain. 50mm more fell than in the same month in previous years.
  • The rise in February was driven by an increase in the commercial activity balance from 46.2 to 53.0, its strongest reading since September. Indeed, the latest RICS construction survey which showed a rise in commercial workload expectations, perhaps as developers restarted delayed projects as the economic outlook improved. But note that commercial construction output was 22% below pre-virus levels in December compared to a 6% shortfall for overall construction, so the improvement is from a low base.
  • Meanwhile, the civil engineering balance rose from 45.0 to 47.5. But housing output continued to be the best performer even though the balance slipped from 57.1 to 56.9, the weakest since May. As the survey asks firms to compare the level of output to the previous month, the lower balance probably reflects stronger activity in the past rather than weakness in the future.
  • Indeed, housebuilders are experiencing solid demand at the same time as trying to bring forward completions ahead of the stamp duty cut and 2013-2021 Help to Buy deadlines. Indeed, the number of Energy Performance Certificates for new dwellings suggests that completions were 15% above 2020 levels in February. And the HBF survey showed that net reservations were higher in January than the same month a year earlier, which was also solid month.
  • The combination of strengthening demand and transport delays continued to push up lead times and input costs. The suppliers’ delivery time balance remained well below 50, only rising from 25.5 to 29.0, indicating long lead times. And the input prices balance rose from 68.5 to 73.0, its highest since August 2008. (See Chart 1.) We think that transport delays will ease as cross-channel trade returns to normal levels.
  • Even before further support for the housing market was announced in the budget, the future activity index jumped from 66.6 in January to 75.3 in February, the highest since October 2015. While housebuilding looks likely to remain strong, we suspect any recovery in commercial construction activity will be limited. After all, the prolonged national lockdown will put further pressure on occupier demand, particularly in the office and retail sectors and this will weigh on developer’s willingness to start new projects.

Chart 1: IHS Markit/CIPS Construction PMI Delivery Times & Input Costs Balances

Sources: IHS Markit/CIPS


Andrew Wishart, Property Economist, andrew.wishart@capitaleconomics.com, +44 (0)7427 682 411
Prohad Khan, Property Economist, prohad.khan@capitaleconomics.com