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Slide in UK construction activity slows in January, optimism nears two-year high

By Amanda Cooper

Housebuilding sees the biggest improvement

The decline in British construction activity slowed sharply in January, as greater political certainty and more economic stability boosted optimism to a 21-month high, according to a survey of 150 construction groups.

The IHS Markit UK Construction Purchasing Managers’ Index rose to 48.4 in January from 44.4 in December, beating forecasts for a reading of 46.6. January marked the slowest pace of contraction since May 2019. A reading of 50 separates growth from contraction. Building activity has shrunk every month since April last year.

Housebuilding saw the biggest improvement, while commercial activity also declined at a more modest pace. IHS Markit said construction companies were now at their most optimistic over growth prospects since April 2018. “A number of firms noted that clients' willingness to spend had picked up after the general election, which should translate into rising workloads over the course of 2020,” the industry analyst said.

"Despite concerns about prospects for work on infrastructure projects, the latest data revealed a strong rebound in business optimism across the construction sector as a whole in January,” said Tim Moore, IHS Markit economics associate director.

Shares in major home builders rose in London. The FTSE 350 construction and buildings sector rose 1.2 per cent, with strong gains in Balfour Beatty and Marshalls Group. Shares in peer Kier Group rose by as much as 10 per cent after a flurry of ratings upgrades.

IHS Markit said much of the pickup in the building sector was due to a more stable political backdrop following Conservative prime minister Boris Johnson’s convincing win at the December 12 election.

The UK is currently at the start of an 11-month transition period in which it must renegotiate the terms on which it trades with the European Union, much of which is still very unclear.

"Though this rebound is a welcome sign, as with all sudden improvements, the danger remains that the sector could easily recoil and shrink again;” said Duncan Brock, group director at the Chartered Institute of Procurement & Supply.

“The domestic political situation and the UK’s attempt to find its place in the world remains littered with obstacles so businesses could find themselves on this see-saw of good and bad news for some time yet."

FURTHER READING: Johnson signals hardline stance ahead of UK-EU trade talks

FURTHER READING: Pre-election surge in UK home loans

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