Infrastructure and commercial activity both declined in November but housebuilding boosted overall construction output, according to the latest IHS Markit/CIPS PMI.
November’s purchasing managers’ index jumped to 53.1, up from 50.8 in October, putting it comfortably above the 50.0 threshold for an increase in activity.
This is the fastest rate of expansion in five months, with growth in housebuilding offsetting declines in infrastructure and commercial building.
Infrastructure activity contracted for a third straight month – its longest period of decline since 2013.
However, infrastructure’s slide in November was marginal, according to IHS Markit/CIPS, with some respondents to the PMI optimistic that more work would come through in the energy and transport sectors soon.
Commercial building also posted another month of contraction, with the weakness attributed to “Brexit-related uncertainty” and “subdued economic outlook”.
This was in line with Deloitte’s latest crane survey released last week, which showed new office construction in London at its lowest level for more than three years.
CIPS director for customer relations Duncan Brock said: “It appears that policy support and a small recovery in the UK economy has boosted sentiment and encouraged clients to come out of their shells and start building again.
“The housing sector was the primary driver of growth, increasing at its fastest rate for almost half a year.
“However, it is private sector companies that need to commit to big-ticket spending, with commercial development still underperforming as persistent Brexit uncertainty continues to bite.
“Concerns over civil engineering in particular are also prevalent with its downward course the longest since 2013 and linked to a shortfall of new tender opportunities.”
Lloyds Bank Commercial Banking global corporate relationships director Max Jones suggested that the tight market was increasing pressure on margins.
He said: “Anecdotal feedback indicates that margins are coming under pressure, with competition increasing amid the ongoing economic uncertainty.
“Larger firms also feel caught in the middle between clients pushing for fixed-price contracts and investors hungry for fatter margins.”
This pressure could be easing, however, as respondents also said client demand had picked up slightly after a drop over the summer.
A number of firms also reported an easing of material cost pressures caused by the fall in sterling.
IHS Markit associate director Tim Moore suggested November’s data could signal a turnaround in client confidence for the months ahead.
“Business optimism across the construction sector remained relatively subdued, but picked up from the near five-year low seen in October,” he said.
“This represented the first improvement in confidence for three months, which construction firms attributed to increased sales enquiries and hopes that risk aversion among clients will recede over the course of next year.”
CPA director of economics Noble Francis warned against getting over-optimism following November’s data, however, suggesting that commercial work in particular faced strong headwinds.
“Commercial construction activity continued its trend in recent months: projects signed up to prior to the EU referendum finishing and not being replaced as Brexit uncertainty continues to hit demand from the financial sector for new, additional office space – particularly in central London,” he said.
“The fall in commercial offices new orders over the past year suggests that these falls in commercial activity will continue in December and in 2018.”
Prof Francis also highlighted a significant obstacle to infrastructure investment from the government.
“Government continued to make big announcements in the Autumn Budget last month, highlighting a £600bn pipeline of projects,” he said.
“However, the key issue in infrastructure isn’t a lack of announcements. In fact, it isn’t even a lack of capital investment.
“Infrastructure activity appears to be suffering from a delay in government delivery of major projects.”