Subcontractor rate rise continues as growth rebounds in May

Business activity is rising at a faster pace than April’s 22-month low, however, continuing shortage of subcontractors has seen rates rise according to the latest Markit/CIPS UK Construction Purchasing Managers’ Index (PMI).

UK construction companies recorded a slight rebound in output growth during May, but this only partially reversed the loss of momentum seen in April ahead of the general election. Looking ahead, business confidence across the construction sector picked up sharply over the month, with the degree of positive sentiment the highest since February 2006. According to survey respondents, this was driven by signs of a post-election bounce in clients’ willingness to spend, which in turn supported a further sharp upturn in employment levels.

Greater workloads and efforts to guard against worsening subcontractor availability were factors supporting sustained job creation, according to survey respondents. Substantial skill shortages in turn led to the third-fastest rise in sub-contractor rates since the survey began in 1997 (exceeded only by those recorded in March and April).

Tim Moore, senior economist at Markit and author of the PMI survey, said: “Despite a client spending rebound in May, all three key areas of construction activity have lost considerable momentum over the past 12 months. The scale of the construction slowdown since 2014 is such that it will not be fully reversed through the release of pent up demand after the election alone.

“Moreover, substantial supply chain pressures and acute subcontractor shortages persisted during May, especially across the UK house building sector, in turn driving up operating costs and hampering productivity gains at construction firms.”

Although the upturn in UK construction activity during May was less marked than seen through much of the past two years, the latest survey marked the first acceleration in output growth since February. The modest rebound was driven by a sharp and accelerated increase in residential building activity, alongside a return to growth in the civil engineering sub-sector. Meanwhile, commercial building work expanded at the slowest pace since August 2013.

In line with the trend for business activity, growth of incoming new work picked up for the first time in three months during May. Survey respondents commented on improved underlying client confidence and an associated post-election bounce in new order volumes.

On the price front, May’s survey pointed to a rebound in input cost inflation from the 62-month low registered in April. However, on a more positive note, latest data indicated the least marked deterioration in supplier performance since June 2013.

David Noble, group chief executive  at the Chartered Institute of Procurement & Supply, said:  “Suppliers continue to experience pressure on their stocks, but extra capacity has come back on line and it seems like the worst phase of raw material shortages has passed. Construction companies also reported wages were also on the rise, but from a low base after the pummelling the sector took during the recession.”