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House-building drives construction activity to 17-month high

2 Jun 17 After a slow start to the year, UK construction companies appear to have experienced a sharp rebound in business activity during May 2017.

The latest monthly survey of construction purchasing managers reveals the fastest upturn in residential work since the end of 2015, as well as a sustained recovery in new work, following the soft patch seen during the first quarter of 2017.

Buyers reported a marked expansion of input purchasing across the construction sector and staff recruitment on the rise.

Although prices for imported materials continued to push up input costs during May, the overall rate of input price inflation eased further from the peak seen at the start of the year.

The seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) posted a score of 56.0 in May, up from 53.1 in April.

This signals the strongest expansion of overall business activity for 17 months.

However, the latest reading was still much weaker than the post-crisis peak score of 64.4 recorded in January 2014.

A sharp and accelerated rise in residential work was a key factor supporting overall construction activity in May, according to the survey authors. The housing sub-category has rebounded strongly following the seven-month low seen in March. Moreover, the latest increase in residential building was the fastest since December 2015.

Survey respondents cited a strong pipeline of new development projects and resilient underlying demand conditions.

May data also pointed to solid rises in civil engineering and commercial building. Although commercial development remained the weakest performing sub-category, the latest rise in activity was its fastest since March 2016.

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New business intakes picked up in May, with the rate of expansion the fastest seen so far in 2017. Reports from survey respondents mainly cited resilient demand from the housing sector. Despite the improvement in new work, construction firms noted that heightened economic uncertainty continued to act as a brake on client spending.

Increased workloads underpinned a further marked rise in employment numbers across the construction sector in May. The rate of job creation accelerated for the second month running to its strongest since January 2016. Mirroring the trend for staff recruitment, latest data showed that input buying expanded at the steepest pace for 16 months in May.

A rebound in demand for construction materials placed pressure on supply chains in May, with delivery times lengthening to the greatest extent since March 2015. However, there were more positive developments in terms of cost inflation, as overall input prices rose at the slowest pace for seven months. Survey respondents reported that the weak exchange rate had led to intense negotiations with suppliers, but some noted that the peak phase of price hikes for imported materials had now passed.

Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS Construction PMI, said: “May’s survey data reveals that the UK construction sector has started to recovers strongly from its slow start to 2017. House-building was the key growth driver, with work on residential projects rising at the fastest pace since December 2015. A sustained rebound in residential building provides an encouraging sign that the recent soft patch for property values has not deterred new housing supply. Instead, strong labour market conditions, resilient demand and ultra-low mortgage rates appear to have helped boost work on residential development projects in May.

“Civil engineering continued to flourish, helped by a strong pipeline of infrastructure projects. However, commercial building was trapped in the slow lane amid reports highlighting that heightened economic uncertainty is holding back client spending.

“The forward-looking elements of the latest survey are reassuring for the construction sector, notably the acceleration in new business growth to its strongest so far this year.

“On the price front, while construction costs have ratcheted up over the past six-to-nine months, the wave of inflation from imported materials now appears to have passed its peak.”

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