Growth of the UK construction sector was sustained in July, with the seasonally adjusted Markit/CIPS Construction Purchasing Managers’ Index (PMI) posting 54.1.
However, the latest reading was below June's 58.4, suggesting that the rate of expansion in the sector may have already peaked.
Nonetheless, July data signalled a solid strengthening of the UK construction industry, which was supported by a further increase in new orders.
All of the three broad UK construction sub-sectors showed a weaker rise in activity during July.
Residential construction continued to be the strongest performing of the three categories, with a marked increase reported during the month. However, the latest expansion was the slowest in five months.
In contrast to the previous survey period, commercial-based construction activity increased at a faster pace than civil engineering. The latest increase in commercial construction eased only marginally in the month.
However, the slowdown in the civil engineering sub-sector was notable, with only a slight increase in activity recorded.
UK construction companies reported a further rise in new business received during July - the fifth increase in as many months.
However, with more panellists indicating that new orders had fallen in July compared with the previous month, the rate of expansion slowed to the weakest since March. Nonetheless, the overall rise in new work intakes supported further growth in activity, albeit at a weaker pace.
Despite sustained rises in new orders and output, employment within the UK construction sector failed to rise in July. This ended a two-month period where staffing levels had increased.
Alongside the slowdown in new order growth, the fall in headcounts was attributed to cost cutting reviews and freezes on recruitment.
Similarly, usage of sub-contractors by UK construction companies also decreased, with availability subsequently rising.
Input prices faced by constructors increased substantially during the month, driven by higher raw material prices. Nonetheless,purchasing activity rose for a fifth successive month, reflective of the sustained expansion in activity. Despite this, a marginal improvement in suppliers' delivery times was reported.
UK construction companies remained optimistic over future business expectations during July. Many panellists commented that they expect ongoing economic improvements to boost activity during the coming year. However, the degree of positive sentiment was the weakest in 15 months, dampened by impending cuts in government spending.
'Growth of the UK construction sector slowed during July. However, this was not wholly unexpected, and likely represented a normalisation from the strong rates of expansion recorded in Q2,' said Sarah Ledger, economist at Markit and author of the UK Construction PMI.
'Perhaps more concerning was the continued impact on confidence that impending public sector spending cuts and the scheduled VAT rise have had. This was highlighted by the solid reduction in employment indicated during the month, as construction companies continue to review costs carefully,' she added.
'Although we've seen a marked slowdown in growth for the UK construction sector, the warning bells aren't ringing yet and an immediate double-dip seems unlikely,' insisted David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply.
'Instead, we're finally starting to see the growth in activity tail-off and normalise at a slightly slower rate.
'Nonetheless, despite rises in new orders and output, it is telling that contractors accommodated the slowdown by making immediate job cuts - reaffirming how tight things still are. In the face of ongoing public sector spending cuts and steep input price inflation, it is going to be a case of slow and steady wins the race. The industry has to come to terms with a much altered, post-recession landscape, where full recovery may take some time yet,' added Noble.