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Wed July 18 2018

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Construction PMI rebounds to seven-month high

3 Jul The latest monthly survey of construction purchasing managers shows that June 2018 was the strongest month for UK construction of the year so far.

New orders were at their strongest for more than a year and input buying saw its largest upturn for two-and-a-half years.

House-building growth and an acceleration in commercial construction were behind June’s solid showing.

However, improved demand for construction materials resulted in longer lead times from suppliers and the most marked increase in input prices since September 2017.

The seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) posted a score of 53.1 in June, up from 52.5 in May and above the 50.0 no-change value for the third month running. The latest reading pointed to the sharpest overall rise in construction output since November 2017.

Residential work remained the best performing area of activity but commercial building also contributed to the stronger overall rise in construction output, with this category of work expanding at the fastest pace since February. At the other end of the scale, civil engineering activity rose only slightly in June, with the rate of growth easing to a three-month low.

Survey respondents noted that a general improvement in client demand had helped to boost construction workloads in June. Reflecting this, latest data indicated a solid rebound in new order volumes following the decline seen during the previous month. The rate of new business growth was the strongest for just over one year in June.

Higher levels of new work contributed to faster increases in employment numbers and purchasing activity during June. The pace of job creation accelerated to its strongest for one year, while the latest rise in input buying was the steepest since December 2015. Construction companies noted that greater purchasing activity reflected new projects starts and, in some cases, forward purchasing of inputs to mitigate forthcoming price rises from suppliers.

Average cost burdens increased at a sharp and accelerated pace in June. The latest increase in input prices was the steepest for nine months, which construction companies attributed to greater transportation costs and higher prices for metals (especially steel). Meanwhile, vendor lead times lengthened again in June, driven by low stocks and capacity constraints among suppliers.

UK construction companies indicated a rebound in business optimism from May’s seven-month low, although the degree of positive sentiment remained much weaker than the long-run survey average.

Survey respondents cited infrastructure work as a key source of growth in the coming 12 months.

Tim Moore, associate director at IHS Markit and author of the IHS Markit/CIPS Construction PMI, said: “The latest increase in UK construction output marks three months of sustained recovery from the snow-related disruption seen back in March. A solid contribution from house building helped to drive up overall construction activity in June, while a lack of new work to replace completed civil engineering projects continued to hold back growth.

“Of the three main categories of construction work, commercial building was sandwiched in the middle of the performance table during June. Survey respondents suggested that improved opportunities for industrial and distribution work were the main bright spots, which helped to offset some of the slowdown in retail and office development.

“Stretched supply chains and stronger input buying resulted in longer delivery times for construction materials during June. At the same time, higher transportation costs and rising prices for steel-related inputs led to the fastest increase in cost burdens across the construction sector since September 2017.”

 

 

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