Business confidence across the construction sector picked up sharply in May, with the Conservative election victory contributing to the highest degree of positive sentiment since February 2006.
The headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) registered 55.9 in May, up from 54.2 in April and well above the neutral 50.0 threshold.
Despite remaining strongly positive, the latest reading was still the second-lowest since June 2013. Anecdotal evidence suggested that weaker new business gains during the March and April pre-election slow-down had acted as a drag on overall output growth in May.
Although the upturn in UK construction activity during May was less marked than seen through much of the past two years, the latest survey marked the first acceleration in output growth since February. The modest rebound was driven by a sharp and accelerated increase in residential building activity, alongside a return to growth in civil engineering. Commercial building work also expanded, but at its slowest pace since August 2013.
In line with the trend for business activity, growth of incoming new work picked up for the first time in three months during May. Survey respondents commented on improved underlying client confidence and an associated post-election bounce in new order volumes.
Looking ahead to the next 12 months, 58% of the survey panel anticipate a rise in output, while only 4% forecast a reduction. Anecdotal evidence cited ongoing investment plans, new project wins and reduced uncertainty towards the business outlook.
Markit senior economist Tim Moore, who compiles the survey, said: “May’s survey provides the first sign of a post-election bounce in the UK construction sector. With a sustained period of policy uncertainty no longer on the horizon, business confidence surged back to its highest level since early 2006.
“Additionally, construction firms experienced an upturn in new business growth from April’s near two-year low and job creation was the fastest recorded so far in 2015.
“However, it is far from certain whether the relief rally in construction confidence will usher in a lasting turnaround in output volumes on the ground.
“Despite a client spending rebound in May, all three key areas of construction activity have lost considerable momentum over the past 12 months. The scale of the construction slowdown since 2014 is such that it will not be fully reversed through the release of pent up demand after the election alone.
“Moreover, substantial supply chain pressures and acute sub-contractor shortages persisted during May, especially across the UK house building sector, in turn driving up operating costs and hampering productivity gains at construction firms.”
David Noble, chief executive of the Chartered Institute of Procurement & Supply (CIPS), which sponsors the survey, added: “The brakes are now off for the construction sector as it makes up some of the losses over the last few months with a steady and comfortable improvement. Though nothing like the highs of 2014, the quietly confident approach after the restraint displayed before the general election, shows business confidence at its highest since February 2006.”
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