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KPMG says rocketing demand is increasing strain on construction industry

According to the latest Markit/CIPS UK Construction PMI published on 2 July, the construction sector saw output growth increase at its fastest level for four months in June, following a 22-month low recorded in April.

This was highlighted by a rise in the headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) from 55.9 in May to 58.1 in June. The latest reading was well above the long-run survey average (54.6) and indicated the fastest increase in overall construction activity since February.

The most rapidly growing area of construction output in June was residential activity. However, the acceleration in the headline index since May was driven by a sharp upturn in both commercial and civil engineering activity growth over the month.

In addition, reports from survey respondents suggested that improving client demand and strong order books continued to support output growth in June. Highlighting this, latest data indicated that overall growth of new work rebounded for the second successive month to its steepest since October 2014.

Meanwhile, anecdotal evidence linked greater new business volumes to rising client confidence and improving business conditions across the UK economy as a whole.

Looking forward, 62% of respondents are predicting a rise in output over the next 12 months, while only 4% expect a decline. As a result, the latest survey pointed to the strongest degree of business optimism across the UK construction sector since February 2004.

Richard Threlfall, head of infrastructure, building and construction at KPMG UK, said: “These figures confirm the acceleration in demand for UK construction. The industry will soon be running white hot, as housing, commercial and infrastructure demand are rising together.

“What we are seeing is very unusual. Private demand is rocketing in response to an improving economy and much stronger business confidence. And public demand is surging too, following the Government's post-election re-commitment to a huge infrastructure investment programme. 

“The critical question is, can the industry deliver? I am concerned it cannot. The industry is about to be engulfed in a tidal wave of work but it’s struggling already with a huge skills shortage, weak Tier 1 balance sheets, and a lack of investment in capacity. I expect a lot more industry trauma as this story plays out.”

 

 

6 July 2015

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