UK construction companies remained in expansion mode at the end of 2013, as highlighted by relatively sharp rises in output, new orders and employment during the latest Markit/CIPS UK Construction Purchasing Managers’ Index survey covering December 2013.  Survey respondents also anticipate an increase in business activity over the course of 2014, with the proportion of firms forecasting growth (57%) well above those that expect a decline (10%).

Adjusted for seasonal factors, the Markit/CIPS UK Construction Purchasing Managers’ Index was down only slightly from November’s 75-month peak. At 62.1 in December, from 62.6 in the previous month, the index was well above the 50.0 value that separates expansion from contraction. Moreover, the latest reading marked eight months of continuous output growth in the UK construction sector.

Higher levels of business activity reflected strong rates of expansion in all three broad categories of construction output monitored by the survey. Residential activity remained the fastest growing area of construction, but it was also the only category to post a slower pace of expansion than in November. Meanwhile, work on commercial projects rose at the steepest rate since August 2007 and civil engineering activity increased at the same pace as that reported in the previous month.

Construction companies noted that improving business conditions and greater confidence in the economic outlook had boosted spending among clients during December. Higher levels of incoming new work have been recorded in each of the past eight months. Although the rate of new order growth eased since November, the latest expansion was one of the steepest seen since late-2007. This in turn contributed to a robust degree of optimism about the outlook for business activity during the year ahead. Moreover, the proportion of companies expecting an increase in output levels (57%) is much higher than was recorded just before the start of 2013 (31%).

Stronger business confidence and a sustained improvement in new order levels continued to drive staff recruitment in the construction sector during December. Increased workforce numbers have now been recorded for seven consecutive months, which is the longest continuous period of job creation for around five-and-a-half years. Construction companies also pointed to the fastest rise in sub-contractor usage since April 2004.

Meanwhile, suppliers’ delivery times lengthened sharply at the end of 2013, as increased purchasing volumes placed pressure on stock availability. Strong demand for inputs contributed to a further rise in cost burdens in December. Latest data indicated that the rate of input price inflation was little-changed since November, and remained at a level rarely exceeded during the past two-and-a-half years.