Construction growth rebounds in June
Construction output growth has rebounded according to the latest Markit/CIPS UK Construction Purchasing Managers’ Index (PMI). The index rose from 55.9 in May to 58.1 in June. This rise represents the fastest increase in overall construction activity since February.
Residential activity remained the fastest growing area of construction output in June. However, the acceleration in the headline index since May was driven by a sharp upturn in both commercial and civil engineering activity growth over the month.
Reports from the survey respondents suggested that improving client demand and strong order books continued to support output growth in June. Highlighting this, latest data indicated that 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, just under two-thirds of the survey panel (62%) forecast a 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.
Steeper output growth and a surge in business optimism supported an upturn in job creation across the construction sector during June. The latest increase in employment numbers was the fastest since December 2014. Moreover, strains on sub- contractor availability persisted in June, although the latest rise in sub-contractor 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.
Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: ““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 sub-contractor 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: “Today’s 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.”
David Noble, group chief executive at the Chartered Institute of Procurement & Supply, said: “Construction was on a real high this month with the sharpest rise in overall activity since February as the sector made up for lost ground since the General Election. If there was a downside to this upturn it was the burden on suppliers to keep pace with rising need as lead times experienced the greatest lengthening since March 2015 and stock levels were depleted from this higher demand.”
