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Construction activity rebounds as output hits seven-month high

Construction output hit a seven-month high in September, led by the fastest rise in residential activity for a year.

According to the Markit/CIPS Construction PMI, all three sectors covered – residential, commercial and civil engineering – rebounded following a dip in August.

The purchasing managers’ index now stands at 59.9 in September, up from the previous month’s 57.3 and significantly ahead of the long-running average of 54.7.

September’s growth was the fastest recorded since February 2015.

The residential market was the strongest performing of the three sectors, posting its fastest growth for 12 months, while civil engineering saw activity increase for the fifth consecutive month.

New work also improved in September, albeit at a pace that was the slowest for five months and significantly more sluggish than the peak rates posted in 2013 and 2014.

Nevertheless, construction companies remained positive about the industry’s prospects, with 52 per cent of respondents forecasting an upturn in business activity over the subsequent 12 months, while only 6 per cent expected a decline.

Elsewhere, the rates subcontractors charge for their work continued to rise, albeit at a slower pace than the survey’s record highs seen in 2015.

In addition, construction firms reported that subcontractor usage was higher than a month earlier.

Commenting on the data, Stefan Friedhoff, global corporates managing director for construction at Lloyds Bank Commercial Banking, said: “Now in the final quarter of the year, the focus for most in the sector will be on the outlook for 2016.

“Generally, firms are upbeat and that mood is reflected in this data.

“Some clouds remain on the horizon, however, not least increased competition among contractors for work, the possibility of interest rate rises and cost inflation, which has of late become an issue again after subsiding in the first half of the year.

“There remains variation across the sector as a whole. Residential is still blazing a trail, evidenced by the presence of four housebuilders in the current FTSE 100, while commercial and civil engineering are slightly less buoyant.

“The firms coping best in this consistently challenging environment are those that continue to diversify away from core UK project work – for example, by developing their support services divisions or securing work in overseas markets.”

According to forecasts from consultancy Leading Edge, construction output will grow by 1.6 per cent in 2015, followed by an increase of 3.3 per cent in 2016.

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