Residential and commercial activity deliver June upturn

August 2018

June data revealed a solid expansion of overall construction activity, underpinned by greater residential work and a faster upturn in commercial building.  There were also positive signs regarding the near-term outlook for growth, as signalled by the strongest rise in new orders since May 2017 and the largest upturn in input buying for two-and-a-half years. Improved demand for construction materials resulted in longer lead times from suppliers and the most marked increase in input prices since September 2017.

The seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index posted 53.1 in June, up from 52.5 in May and above the 50.0 no-change value for the third month running. 

Residential work remained the best performing area of activity. Commercial building also contributed to the stronger overall rise in construction output, expanding at the fastest pace since February.  At the other end of the scale, civil engineering activity rose only slightly in June.

The latest data indicated a solid rebound in new order volumes following the decline seen during the previous month. Higher levels of new work contributed to faster increases in employment numbers and purchasing activity during June. The pace of job creation accelerated to its strongest for one year, while the latest rise in input buying was the steepest since December 2015. Construction companies noted that greater purchasing activity reflected new projects starts and, in some cases, forward purchasing of inputs to mitigate forthcoming price rises from suppliers.

Average cost burdens increased at an accelerated pace in June; the steepest for nine months, caused partly by greater transportation costs and higher prices for metals, especially steel.  UK construction companies also indicated a slight rebound in business optimism from May’s seven-month low.

Tim Moore, Associate Director at IHS Markit, says: “The latest increase in UK construction output marks three months of sustained recovery from the snow-related disruption seen back in March. A solid contribution from house building helped to drive up overall construction activity in June, while a lack of new work to replace completed civil engineering projects continued to hold back growth. Of the three main categories of construction work, commercial building was sandwiched in the middle of the performance table during June.”

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