UK construction PMI jumps to 55.8 in July due to rise in residential work

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UK construction companies achieved a stronger expansion of business activity levels during July, strengthened by the fastest increase in residential work since 2015

The latest Purchasing Managers’ Index (PMI) from Markit Economics indicated that new business growth gained momentum, which contributed to the largest rise in employment numbers since December 2015. Supply chain pressures continued in July, which contributed to another sharp lengthening of delivery times for construction products and materials. However, input cost inflation steadied from the nine-month high seen in June.

At 55.8 in July, up sharply from 53.1 in the previous month, the Purchasing Managers’ Index signalled the fastest rise in overall construction output since May 2017. Survey respondents commented on improving demand conditions, higher volumes of new project starts and, in some cases, a degree of catch-up from the bad weather earlier in 2018.

Housebuilding was the best performing category of construction activity in July. Commercial work also picked up at the fastest pace. Civil engineering activity increased only moderately, albeit at a sharper rate than in June. Construction companies noted that a lack of work to replace completed projects (particularly railway infrastructure work) continued to suppress growth in the civil engineering sub-sector.

July data pointed to the strongest increase in total new orders across the construction sector since May 2017. Survey respondents noted that a general improvement in client demand had led to successful contract negotiations on larger scale projects. Despite an upturn in tender opportunities, construction companies are cautious about the year ahead.

Meanwhile, the latest survey indicated that rising sales volumes helped to boost job creation in the construction sector. The rate of employment growth was the fastest since December 2015. Greater purchasing activity led to the sharpest decline in supplier performance since July 2017.

Tim Moore, Associate Director at IHS Markit said: “July data reveal an impressive turnaround in the performance of the UK construction sector, with output growth the strongest for just over one year. While the recent rebound in construction work has been flattered by its recovery from a low base earlier in 2018, there are also signs that underlying demand conditions have picked up this summer. New business volumes expanded at the strongest rate since May 2017, while workforce numbers increased to the greatest extent for just over two and-a-half years.

“Housebuilding was the bright spot for construction growth in July, alongside a stronger upturn in commercial development projects. Residential activity and commercial work both increased at the sharpest pace since December 2015, which contrasted with another subdued month for civil engineering.”

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