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Construction activity at 17-month high

Wednesday 21 June 2017

Britain's construction industry bounced back last month, as a rise in housebuilding drove overall activity to a 17-month high.

The latest IHS Markit/CIPS UK Construction Purchasing Manager's Index (PMI) data revealed that the UK construction sector has started to recover strongly from its slow start to 2017, with business activity rising at the fastest pace since December 2015.

The seasonally adjusted construction PMI posted 56.0 in May, up sharply from 53.1 in April, signalling the strongest expansion of overall business activity for 17 months. While the headline index signaled robust growth momentum during May, the latest reading was still much weaker than the post-crisis peak seen in January 2014 (64.6).

An increase in workload underpinned a further marked rise in employment numbers across the construction sector in May, with the rate of job creation accelerating for the second month running, to its strongest since January 2016.

Replacing civil engineering as the best performing category, residential construction work was a key driver of the surge in activity within the market, according to the index, suggesting the UK's economy is likely to experience something of a renaissance in the coming months.

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, commented:

"After years of sluggish house building, the construction sector snapped back into action in May. Construction growth has surged to a 17-month high as the uncertainty caused by the EU referendum appears to be abating.

"The unexpected recovery in construction has been felt most acutely in residential housing as builders finally feel able to respond to demand for new homes. The sector had been held back by the rising cost of raw materials but after months of tense negotiations with suppliers, input prices are starting to stabilise.

"The rapid upturn in production is putting considerable pressure on construction supply chains. Suppliers are struggling to meet demand while there is a growing shortage of contractors to complete work. After the experience of the financial crisis, it may be some time before risk aversion fully recedes and suppliers have more confidence to invest in their capacity. Only time will tell whether we are witnessing a long awaited resurgence in housebuilding."

Senior Economist at IHS Markit and author of the Markit/CIPS Construction PMI, Tim Moore said:

"House building was the key growth driver, with work on residential projects rising at the fastest pace since December 2015. A sustained rebound in residential building provides an encouraging sign that the recent soft patch for property values has not deterred new housing supply. Instead, strong labour market conditions, resilient demand and ultra-low mortgage rates appear to have helped boost work on residential development projects in May."

Despite sterling's prolonged weakness, overall input prices for construction firms rose at their slowest pace for seven months, with the wave of inflation from imported materials now appearing to have passed its peak.