Construction sector experiences 'post-election bounce'

Will Green is news editor of Supply Management
2 June 2015

Growth in the construction sector is expected to “trundle along” following a post-election bounce.

The Markit/CIPS UK Construction Purchasing Managers’ Index rose to 55.9 in May, up from 54.2 in April, and against a no-change position of 50.

The reading was the second-lowest since June 2013, but business confidence picked up sharply after the General Election, with the degree of positive sentiment the highest since February 2006.

David Noble, group CEO, CIPS, said: “The brakes are now off for the construction sector as it makes up some of the losses over the last few months with a steady and comfortable improvement. Though nothing like the highs of 2014, the quietly confident approach after the restraint displayed before the General Election, shows business confidence at its highest since February 2006.

“Of course the real strength and longevity of this new momentum will be played out in the coming months but the expectation is the sector is likely to trundle along rather than produce the same elevated progress of last year.”

The modest rebound was driven by a sharp and accelerated increase in residential building and a return to growth for the civil engineering sub-sector. But commercial building work expanded at the slowest pace since August 2013.

More than half the survey panel (58 per cent) anticipated a rise in output levels, while only 4 per cent predicted a reduction.

Substantial skills shortages led to the third-fastest rise in subcontractor rates since 1997, while input cost inflation rose from April’s 62-month low.

Noble said: “Suppliers continue to experience pressure on their stocks, but extra capacity has come back on line and it seems like the worst phase of raw material shortages has passed.”

Tim Moore, senior economist at Markit, said: “Despite a client spending rebound in May, all three key areas of construction activity have lost considerable momentum over the past 12 months. The scale of the construction slowdown since 2014 is such that it will not be fully reversed through the release of pent up demand after the election alone.

“Moreover, substantial supply chain pressures and acute subcontractor shortages persisted during May, especially across the UK house building sector, in turn driving up operating costs and hampering productivity gains at construction firms.”

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