Construction output growth rebounds

UntitledJune data has signalled a further rebound in construction sector output growth from the 22-month low recorded in April. This was highlighted by a rise in the headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) from 55.9 in May to 58.1 in June.

The latest reading was well above the long-run survey average (54.6) and pointed to the fastest increase in overall construction activity since February. Residential activity remained the fastest growing area of construction output in June.

However, the acceleration in the headline index since May was driven by a sharp upturn in both commercial and civil engineering activity growth over the month. Reports from survey respondents suggested that improving client demand and strong order books continued to support output growth in June. Highlighting this, latest data indicated that overall growth of new work rebounded for the second successive month to its steepest since October 2014. Anecdotal evidence linked greater new business volumes to rising client confidence and improving business conditions across the UK economy as a whole. Looking ahead, just under two-thirds of the survey panel (62%) forecast a rise in output over the next 12 months, while only 4% expect a decline.

As a result, the latest survey pointed to the strongest degree of business optimism across the UK construction sector since February 2004. Companies that anticipate a rise in business activity over the year ahead generally cited increased investment spending among clients and robust demand for new residential projects. Moreover, survey respondents noted an increase in new invitations to tender across a range of commercial projects, alongside hopes of new business gains from forthcoming major infrastructure projects. Steeper output growth and a surge in business optimism supported an upturn in job creation across the construction sector during June. The latest increase in employment numbers was the fastest since December 2014. Moreover, strains on sub-contractor availability persisted in June, although the latest rise in sub-contractor charges was the least marked for nine months. Alongside rising staff recruitment, greater workloads contributed to a sharp and accelerated increase in purchasing activity at construction companies in June.

The latest expansion of input buying was the steepest since February. This in turn contributed to another marked deterioration in supplier performance, with lead times lengthening to the greatest degree since March. Input price inflation accelerated to a three-month high. A number of firms linked higher construction materials prices to stock shortages at vendors.

Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: “UK construction companies experienced a growth rebound and surge in business confidence at the end of the second quarter. Survey respondents cited robust inflows of new work in June, adding to already strong order books across the sector.

“Extra workloads and positivity regarding the year-ahead outlook meant that job creation accelerated to its strongest so far in 2015.

“The extent of the recent rise in construction optimism is partly down to relief that pre-election uncertainty has now passed, but it also suggests that firms are infused with confidence that underlying demand will continue to recover.”

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