Construction growth rebounds to 17-month high as housebuilding 'snapped back into action' in May

Soaring housebuilding activity has helped UK construction "snap back into action" at its fastest rate for almost a year and a half in May, new figures reveal.

The seasonally-adjusted Markit/CIPS UK Construction Purchasing Managers’ Index rose to 56 in the fifth month of 2017 - up from 53.1 in April - to signal the strongest expansion of overall
business activity for 17 months.

Following the seven-month low seen in March, the latest survey found a sharp and accelerated rise in housebuilding to be the key growth driver, with work on residential projects rising at its fastest pace since December 2015.

There was also a sustained recovery in new work and solid rises in civil engineering and commercial building, which grew at its fastest rate since March 2016.

Increased workloads encouraged greater staff recruitment with job creation increasing for the second month running to its strongest since January, but prices for imported materials continued to push up input costs.

Despite the reading being much weaker than the post-crisis peak seen in January 2014 (64.6), Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS Construction PMI, said: “May’s survey data reveals that the UK construction sector has started to recover strongly from its slow start to 2017.

“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.

“Civil engineering continued to flourish, helped by a strong pipeline of infrastructure projects. However, commercial building was trapped in the slow lane amid reports highlighting that heightened economic
uncertainty is holding back client spending.

“The forward-looking elements of the latest survey are reassuring for the construction sector, notably the acceleration in new business growth to its strongest so far this year.

“On the price front, while construction costs have ratcheted up over the past six to nine months, the wave of inflation from imported materials now appears to have passed its peak.”

With construction growth surging to a 17-month high in May, the uncertainty caused by the EU referendum appears to be abating, says Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply.

“After years of sluggish house building, the construction sector has snapped back into action in May," he says.

“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.”

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