According to the Markit/CIPS Construction PMI for May, there was another sharp increase in UK construction output, with house building the strongest performing area of activity.
Slower overall construction output growth largely reflected a moderation in commercial building activity, with the latest expansion in this sub-category the weakest for seven months. Residential building remained the strongest performing area of activity, despite the pace of growth easing slightly to a three-month low.
Anecdotal evidence widely linked the latest upturn in construction output to improving economic conditions and greater underlying demand, especially in terms of investment spending and new housing starts. May data pointed to another strong increase in overall new business volumes, although the rate of expansion eased since the previous month.
Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: “Output growth hit a seven-month low in May, but the UK construction sector is enjoying its strongest overall phase of expansion since the summer of 2007. Residential building remains a key engine of growth, with survey respondents citing another surge in new house building starts during May.
“UK construction output is still around 10% lower than its pre-crisis peak, but there were further indications of capacity strains in May as companies reported sharply lengthening delivery times for raw materials as well as the steepest drop in the availability of sub-contractors for almost 17 years.”
Commenting on the report, David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, said: “UK construction activity has shown signs of moderation from the steep growth seen at the start of the year; but strong expansion in new business and improving economic conditions reflected particularly well on business optimism and outlook for the year ahead. Importantly, this was supported by a sharp increase in employment levels, an indication that this latest upturn will continue to expand.
“Residential house building has been leading the way with activity in May, still buoyant on the back of stronger new work and investment spending. In conjunction with a strong expansion of civil engineering activity, these performances were able to offset to a certain degree this month’s slower growth in commercial activity,” he added.
Meanwhile, Michael Dall, lead economist at construction intelligence expert Barbour ABI, said: “With economic output only 0.6 per cent below its pre-crisis peak in Q1 2008, there is no question that the economy is experiencing a growth phase. However, this latest Markit/CIPS UK Construction PMI announcement indicates that the rate of growth may be slowing.
“While private housing continues to drive resurgence in the construction industry, boosted by government initiatives such as Help to Buy, a fall in mortgage approvals announced yesterday also suggest that the housing market may be cooling. This is slightly concerning as so much of the recent growth in construction activity is concentrated within the housing sector. An upturn in other key sectors - particularly private commercial and infrastructure - is vital for a stronger and more durable recovery.
“In addition, there have been reports recently of skills shortages affecting the construction industry. Addressing these supply-side constraints is crucial to ensure the long-term health of the industry going forward.”