Fastest rise in construction output since May 2017

September 2018

UK construction companies achieved a stronger expansion of business activity levels during July, underpinned by the fastest increase in residential work for just over two-and-a-half years. The latest survey also 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 moderated from the nine-month high seen in June.

At 55.8 in July, up sharply from 53.1 in the previous month, the seasonally adjusted IHS Markit/CIPS UK Construction 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.

House building was the best performing category of construction activity in July, with the latest upturn the strongest since December 2015.  Commercial work also picked up at the fastest pace for just over two- and-a-half years.  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) continued to hold back growth in civil engineering.

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. The degree of positive sentiment about future workloads was unchanged since June and remained weaker than the survey average. Anecdotal evidence suggested that Brexit-related uncertainty continued to hold back business optimism in July.

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.  Input cost inflation eased to a three-month low in July, but remains strong.  Respondents widely cited rising fuel bills and higher prices for steel-related inputs.

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