Construction Output Shows Strong Rise August

Construction output showed a “strong and accelerated rise” during August, led by the fastest rise in commercial work for five months.

The latest UK Construction Purchasing Managers’ Index from Markit and the Chartered Institute of Purchasing & Supply shows there were solid increases in both business activity and employment last month.

Higher levels of business activity have now been recorded each month since May 2013, the longest period of sustained growth in more than seven years. That said, the index indicated a softer growth path this year compared with 2014.

Job creation was solid thanks to increased workloads and impending projects. Recruitment has now growth for 27 successive months, the longest run recorded by the survey for over nine years. Subcontractor use also picked up, reaching the fastest pace since February.

Residential construction saw the fastest overall growth in August. Commercial work also accelerated from the previous month, hitting the strongest rate since March. Survey respondents linked the upturn to improving economic conditions and stronger demand from private sector clients.

Civil engineering was the weakest performer of the three sectors monitored for the index, with growth at the slowest rate for three months.

New business was solid across the industry, but the rate of growth was the weakest since May. Companies were, nevertheless, generally upbeat about underlying market conditions and opportunities to tender. Some firms noted that a lack of capacity had hindered their ability to take on new work and, in some cases, had made them more selective about development opportunities.

Overall cost inflation slowed to the weakest pace in four months in August thanks to lower oil-related prices.

Looking ahead, more than half of those surveyed (53 per cent) forecast a rise in business activity over the next 12 months, while only five per cent predicted a fall. The degree of optimism was below the 11-year high seen in June but was still comfortably above the survey’s long-term average.

“The construction sector picked itself up a little more this month as overall activity stepped up. Housing remained the strongest driver of growth in addition some reported new impetus in the commercial sector,” said David Noble, chief executive at the CIPS.

“Capacity restraints limited some companies in their determination to actively chase new business, using their resources to fulfil current commitments. Some raw material shortages were still in evidence as suppliers were challenged to get their act together and keep pace.

“Any further obstacles hampering strong progress were around the lack of available skilled staff as subcontractors were still highly sought-after and offered higher wages. But the rise in the level of permanent posts and employment generally rising for the last 32 months confirmed an optimism displayed by more than half of the survey respondents.

“With some doubt creeping in around the sustainability of the strength of the global economy, any rise in UK interest rates is unlikely to be any time soon, so growth rates are not stymied. With consistently lower input prices such as for oil, the sector was provided with a much-needed additional buffer.”

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