Construction sector output growth continued to rebound in June from its pre-election hiatus.
The monthly survey of construction purchasing managers indicates another strong showing from the industry, with business confidence strengthening to its highest level for more than 10 years.
The seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) is now nudging back towards 60.
The PMI dropped to a 22-month low in April 2015 of 54.2 as the general election approached, but picked up to reach 55.9 in May and has now recorded a score of 58.1 for June. Any score over 50 indicates that the industry is in growth mode.
House-building remains the fastest growing area of construction output, although the acceleration in the headline index since May was driven by a sharp upturn in both commercial and civil engineering activity growth during June.
Reports from survey respondents suggested that improving client demand and strong order books continued to support output growth in June. 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, 62% of Markit’s survey panel forecast a further 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. And although strains on subcontractor availability persisted in June, the latest rise in subcontractor 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.
Markit senior economist Tim Moore 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.
“Scorching hot demand for some construction products placed additional pressure on supply chains in June, with delivery times lengthening again for a wide range of materials. Meanwhile, another substantial rise in subcontractor charges highlighted that persistent skill shortages in the construction sector are contributing to sharp rises in labour costs in some areas.”
Richard Threlfall, head of infrastructure, building and construction at KPMG UK, said:
“These figures confirm the acceleration in demand for UK construction. The industry will soon be running white hot, as housing, commercial and infrastructure demand are rising together.
“What we are seeing is very unusual. Private demand is rocketing in response to an improving economy and much stronger business confidence. And public demand is surging too, following the Government’s post-election re-commitment to a huge infrastructure investment programme.
“The critical question is, can the industry deliver? I am concerned it cannot. The industry is about to be engulfed in a tidal wave of work but it’s struggling already with a huge skills shortage, weak Tier 1 balance sheets, and a lack of investment in capacity. I expect a lot more industry trauma as this story plays out.”