Construction activity increases again

May saw a rise in construction industry activity according to the latest Markit/CIPS Construction Purchasing Managers’ Index report.
May posted a figure of 54.0, up from 53.3 in April.

This was put down to increases in new business as well as a number of projects coming out of storage.

Of the three broad areas of construction activity monitored by the survey, commercial was the strongest performing for a second month running. House-building expanded after posting a contraction in April, but the rate of increase was below the long-run trend. In contrast, civil engineering saw a reduction in activity for the first time in five months.

However, whilst the reading for May points to stronger levels of activity in the industry, the index is still below the Q1 average.

UK construction companies reported a marked rise in incoming new business during May that was in line with the historical average. Anecdotal evidence suggested that a general increase in opportunities to tender and the conclusion of protracted contract negotiations had led to the latest rise in new business.

Sustained growth of both new contract wins and activity led to an overall increase in employment in May that was the first since June 2010. However, the rate of job creation was modest, with continuing reports by some companies of limited new work and job cuts acting to moderate the overall increase in staffing levels. Meanwhile, sub-contractor usage continued to fall.

Purchasing of materials increased for a fifth month running in May, reflective of a further rise in activity. The rate of expansion was broadly consistent with that recorded in April. Subsequently, suppliers’ delivery times lengthened again, compounded by stock shortages at vendors.

May data signalled a considerable rise in input prices faced by UK construction companies. Panellists also commented that higher raw material costs continued to be the main driver of inflation which, despite easing marginally for a second month running, remained at a historically elevated level.

Sarah Ledger, Economist at Markit and author of the UK Construction PMI® said: “Construction sector activity grew again in May, with the rate of expansion accelerating slightly since April. Moreover, new order growth was marked, suggesting that increasing levels of output will be sustained.

“A look at the sub-sectors monitored shows a mixed picture, with levels of civil engineering activity down markedly, but a return to growth for housing. Commercial output growth was broadly consistent month-on-month, with the average for the quarter so far outpacing that of Q1.

“Positive sentiment regarding future business activity rose to a one-year high, although concerns over public sector spending cuts continue to weigh on confidence.”

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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