Construction growth rebounds to 17-month high in May
UK construction companies experienced a sharp rebound in business activity during May, helped by the fastest upturn in residential work since the end of 2015, according to the latest UK Construction Purchasing Managers’ Index report from IHS Markit and the Chartered Institute of Procurement & Supply.
The seasonally adjusted PMI posted 56.0 in May, up sharply from 53.1 in April, to signal the strongest expansion of overall business activity for 17 months. While the headline index signalled robust growth momentum during May, the latest reading was still much weaker than the post-crisis peak seen in January 2014.
A sharp and accelerated rise in residential work was a key factor supporting overall construction activity in May. 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 the fastest since March 2016.
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. 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.
A rebound in demand for construction materials placed pressure on supply chains, with delivery times lengthening to the greatest extent since March 2015. However, the 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.
Duncan Brock, director of customer relationships at CIPS, said: “After years of sluggish house building, the construction sector snapped back into action in May. Construction growth has surged to a 17-month high as the uncertainty caused by the EU referendum appears to be abating.
“The unexpected recovery in construction has been felt most acutely in residential housing, as builders finally feel able to respond to demand for new homes. The sector had been held back by the rising cost of raw materials but, after months of tense negotiations with suppliers, input prices are starting to stabilise.
“The rapid upturn in production is putting considerable pressure on construction supply chains. Suppliers are struggling to meet demand while there is a growing shortage of contractors to complete work. After the experience of the financial crisis, it may be some time before risk aversion fully recedes and suppliers have more confidence to invest in their capacity. Only time will tell whether we are witnessing a long-awaited resurgence in house building.”