CIPS News


UK construction sector picks up slightly in August, led by fastest rise in commercial work for five months

CIPS 2 September 2015

Strong and accelerated rise in total construction output

Markit/CIPS UK Construction PMI®

Key points:

  • Strong and accelerated rise in total construction output
  • Strains on supplier lead-times are the least marked since May 2012
  • Input cost inflation eases to a four-month low

UK construction companies remained in recovery mode during August, with business activity and employment levels both expanding at a strong pace. There were also some encouraging signs that strains on raw material availability have started to subside, as highlighted by the slowest deterioration in vendor performance for just over three years in August. Survey respondents noted that rising levels of supplier capacity, alongside lower fuel and energy costs, had helped restrain overall input price inflation in August. The headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index®(PMI®) registered 57.3 in August, up from 57.1 in July and well above the neutral 50.0 threshold.

Higher levels of business activity have been recorded in each month since May 2013, which represents the longest period of sustained growth for seven-and-a-half years. That said, the index continued to signal a softer growth path than that recorded throughout 2014.

Of the three broad sectors monitored by the survey, the fastest pace of expansion was in residential construction. Growth of commercial work also accelerated since the previous month, reaching its strongest since March. Survey respondents widely linked the latest upturn to improving economic conditions and strong demand from private sectorclients. Meanwhile, civil engineering was theweakest performing broad area of activity, with thelatest rise in output the slowest for three months.

August data pointed to a solid expansion in new business intakes across the UK construction sector, but the rate of growth eased to its least marked since May. Survey respondents were nonetheless generally upbeat about underlying market conditions and the number of opportunities to tender. Some firms simply noted that capacity constraints at their business units had held back their ability to take on new work and, in some cases, allowed them to become more selective about development opportunities.

Looking ahead, more than half of the survey panel (53%) anticipate a rise in business activity over the next 12 months, while only 5% forecast a reduction. Although the degree of optimism remained belowJune’s 11-year high, the latest reading wascomfortably above the long-run survey average.

Increased workloads and impending new project starts in turn contributed to a robust rate of job creation in August. The current period of staff hiring now stretches to 27 successive months, which is the longest recorded by the survey for just over nine years. Sub-contractor usage also picked up again, with the pace of expansion the fastest since February.

The latest survey highlighted that sub-contractor charges rose sharply, but the rate of inflation slipped to its lowest since April 2014. Meanwhile, lower oil-related prices contributed to the weakest overall rate of cost inflation for four months in August.

Commenting on the report, David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said:

“The construction sector picked itself up a little more this month as overall activity stepped up. Housing remained the strongest driver of growth in addition some reported new impetus in the commercial sector.

“Capacity restraints limited some companies in their determination to actively chase new business, using their resources to fulfil current commitments. Some raw material shortages were still in evidence as suppliers were challenged to get their act together and keep pace.

“Any further obstacles hampering strong progress were around the lack of available skilled staff as subcontractors were still highly sought-after and offered higher wages. But, the rise in the level of permanent posts and employment generally rising for the last 32 months, confirmed an optimism displayed by more than half of the survey respondents.

“With some doubt creeping in around the sustainability of the strength of the global economy, any rise in UK interest rates is unlikely to be any time soon, so growth rates are not stymied. With consistently lower input prices such as for oil, the sector was provided with a much-needed additional buffer.”

Ends 

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