Why construction output in Britain grows very fast?

Construction output in Britain grew at its fastest pace in seven months in August, boosting job creation but also putting strain on suppliers, industry data showed yesterday.

The monthly Markit/CIPS purchasing managers’ index (PMI) for construction climbed to 64.0 in August from 62.4 in July, exceeding all the forecasts in a Reuters poll of economists.

Output grew in each of the housing, commercial and civil engineering markets, Markit said.

Readings above 50 indicate month-on-month growth in activity. Those below 50 represent contraction.

British construction companies took a beating from the financial crisis and only began to grow strongly last year, helped by the economic recovery, low interest rates and programmes designed to boost demand for homes.

But construction of new homes remains below levels needed to meet demand and the Bank of England has said that risks from the housing market pose the biggest domestic threat to the country’s economic recovery.

Employment growth in construction remained strong, falling only slightly from a record high reported in July.

“A broad-based upturn in construction demand has created a boom in job creation this summer, as construction companies look to replace capacity lost in the aftermath of the recession,” said survey author Tim Moore.

Respondents cited Britain’s strong economic recovery as one reason new work continued to come in. More than half of companies said they expected a rise in business activity over the forthcoming year.

The steep increase in employment has left the supply chain feeling the strain. Sub-contractor availability dropped at record pace and their charging rates grew at the fastest pace to date.

Supplier performance also suffered, leading to the slowest delivery times from vendors since the survey began in 1997.

Detailed PMI data are only available under licence from Markit and customers need to apply to Markit for a licence.

Meanwhile, British housebuilder Redrow’s full-year profit soared 91%, spurred by the UK government’s ‘Help-to-Buy’ housing scheme and strong consumer sentiment.

Shares in the company, which doubled its final dividend to 2 pence per share, rose 1.4% to 285.57 pence in early trade yesterday on the London Stock Exchange.

“We have substantially increased our land bank, which should see a good growth in the number of outlets during the year. This, combined with our strong order book, leaves me confident that the group will see another year of significant progress,” chairman Steve Morgan said in a statement.

However, the company cautioned that the Bank of England’s decision to introduce new rules to help curb the surge in Britain’s housing market and limit mortgage lending had moderated the market, forcing housing activity back to a more seasonal pattern.

The bank said in June it would cap mortgages worth 4.5 times a borrowers’ income from October, and that the changes would apply to 85% of total new home loans, sending shares in leading British housebuilders down more than 4% on the day.

Pretax profit rose to £132.6mn ($219.9mn) in the 12 months ended June 30, from £69.4mn a year earlier.

Full-year revenue jumped 43% to £864.5mn, the mid-sized residential and mixed-use property developer said.

The FTSE-250 company’s total legal completions rose 27% to 3,597, encouraging it to add 230 direct employees to its workforce. ‘Help to Buy’ represented 35% of Redrow’s private completions during the year.

‘Help-to-Buy’ scheme helps people buy homes priced up to £600,000 with a deposit as low as 5%, largely to encourage first-time buyers to get on the property ladder.

Redrow said the value of private reservations increased 53% to £1.021bn, with its average selling price rising 13% to £239,500. Source: Reuters/Gulf Times