UK construction holds pace in Feb, but orders slow and costs soar - PMI

LONDON (Reuters) - Growth across Britain’s construction industry picked up slightly in February, driven by the civil engineering sector, though a slowdown in new orders and soaring costs added to mixed signals for the economy, a survey showed on Thursday.

Cranes are seen on a construction site in London's financial district of Canary Wharf, Britain December 1, 2016. REUTERS/Kevin Coombs

The Markit/CIPS Construction Purchasing Managers’ Index (PMI) edged up to 52.5 from 52.2 in January, above forecasts in a Reuters poll that had pointed to an unchanged reading.

Growth in housebuilding cooled to a six-month low and commercial construction contracted for the first time in four months, but this was outweighed by an improvement for civil engineering firms.

Adding to the uncertain outlook, Travis Perkins TPK.L, Britain's biggest supplier of building materials, reported a 67 fall percent in pre-tax profit after a raft of exceptional charges - and flagged caution around the economy.

“The sharp decline in the value of sterling since June 2016 has created cost pressures on imported goods and materials, and the expectations for secondary housing market transactions and growth in the repair, maintenance and improvement market have weakened,” the company’s chief executive, John Carter, said.

The PMI showed new orders increased at the slowest pace since October and construction companies found scant respite from spiralling price pressures, which increased last month at a pace just shy of January’s 8-1/2-year record.

“With Brexit uncertainty likely to continue to weigh on business confidence and falling real wages set to worsen housing affordability, it remains hard to see the construction sector’s malaise coming to an end this year,” said Samuel Tombs, economist at Pantheon Macroeconomics.

Optimism among construction companies declined a little after hitting a 13-month peak in January.

Construction accounts for around 6 percent of British economic output, a fraction of the size of the dominant services industry. Markit is due to publish its PMI for services on Friday.

The Bank of England is watching closely for signs of a slowdown in Britain’s economy this year, caused by rising inflation and weaker spending power among consumers.

However, it has forecast growth of 2.0 percent, stronger than expected by economists polled by Reuters.

After being wrong-footed by the resilience of British consumer demand and the housing market after the referendum, it now expects investment in housing to grow by 3 percent this year, barely down on 2016’s 4 percent growth rate.

Editing by Toby Chopra