UK Construction activity picks up

Growth has accelerated in the UK construction sector with the second half of the year getting underway; July saw much faster increases in both activity and new orders , according to the headline S&P Global UK Construction Purchasing Managers’ Index™ (PMI), which rose sharply to 55.3 in July from 52.2 in June.

The reading extends the current sequence of growth to five months, and was the fastest rate of expansion since May 2022.

All three categories of construction saw activity increase in July as work on housing projects returned to growth.

Commercial activity increased solidly, but the fastest expansion was seen in civil engineering activity, where the rate of growth quickened to the sharpest in almost two-and a-half years. According to respondents, success in securing new orders was the main factor leading to a rise in construction activity at the start of the third quarter. New business expanded for the sixth month running, and at a marked pace that was the strongest since April 2022. Alongside a general improvement in market demand, there were also reports that customer confidence had strengthened, making them more willing to release previously paused projects.

Rising workloads meant both purchasing activity and employment rose more quickly, with staffing levels up for the third consecutive month, and at a solid pace that was the fastest for a year. Meanwhile, a strong rise in purchasing activity was the most pronounced in almost two years.

Increased demand for inputs put some pressure on suppliers in July, resulting in broadly unchanged lead times during the month. This ended a 16-month sequence of improving vendor performance. Panellists also reported issues with manufacturing and transportation. On the other hand, some respondents indicated that suppliers had sufficient stocks to keep on top of orders.

Construction firms remained strongly optimistic that activity will expand over the coming year, although sentiment dipped to a three-month low in July. Improving client confidence is predicted to help lead to growth of new orders and subsequently activity.

Andrew Harker, Economics Director at S&P Global Market Intelligence, said: “The election-related slowdown in growth seen in June proved to be temporary, with the pace of expansion roaring ahead in July. Firms saw the strongest increases in new orders and activity since 2022 as paused projects were released amid reports of improved customer confidence. “The strength of demand moved the sector closer to capacity, bringing a recent period of improving supplier performance to an end. There were also signs of inflationary pressures picking up, something that will need to be watched closely if demand strength continues in the months ahead.”