Output growth at four-month high in June, while job creation hits survey-record pace

CIPS 2 July 2014

Fastest expansion of construction activity since February



Markit/CIPS UK Construction PMI® posted 62.6 in June.

- Employment growth strongest since the survey began in April 1997
- Input cost inflation at highest level in 2014 to date

June data signalled a strong rebound in growth momentum across the UK construction sector, driven by faster expansions of housing and commercial building activity. Stronger new order volumes and ongoing efforts to boost operating capacity contributed to the steepest rise in employment levels since the survey began in April 1997.

At 62.6 in June, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) picked up markedly from a seven-month low of 60.0 in May. The headline index has now posted above the 50.0 no-change threshold for 14 months running and the latest reading signalled the strongest pace of overall output growth since February.
Residential construction remained the best performing area of activity during June. The latest rise in housing activity was the steepest since January. Meanwhile, commercial building activity also increased at the most marked pace for five months in June, which survey respondents linked to improving economic conditions and greater confidence about the business outlook.

Civil engineering was the only area of activity to record a moderation in growth, with the latest expansion the least marked since September 2013. Anecdotal evidence cited rising spending on infrastructure projects, but some firms noted that the completion of work related to flood relief had contributed to a moderation in overall civil engineering output growth.

Volumes of new work received by UK construction companies increased sharply in June and at the fastest pace since January. Stronger demand for new construction projects in turn led to a rapid increase in staffing levels, with the rate of job creation accelerating to its sharpest since the survey began over 17 years ago.

Construction companies remained highly upbeat about the outlook for business activity over the year ahead, reflecting strong new order inflows and favourable economic conditions. That said, the degree of positive sentiment slipped to a six-month low in June, with some panel members noting an increased risk of interest rate rises over the next 12 months.

Meanwhile, sharp rises in input buying across the construction sector contributed to a further marked deterioration in vendor performance. Survey respondents widely commented on low stocks and a lack of spare capacity at suppliers.

Strong demand for construction materials also contributed to an acceleration in input cost inflation to its highest for six months in June. Moreover, the latest rise in sub-contractor charges was only slightly less marked than the survey-record high seen in May.

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

“The construction boom ramped up to a four-month high in June, fuelling the strongest rise in job creation in the survey’s history. New orders accelerated sharply this month, with much of the increase driven by the expanding housing market and supported by improved commercial activity. Despite civil engineering taking some heat out of activity, UK construction is well positioned to deliver sustained growth in the coming months.

“Reflecting the strong rebound and favourable economic conditions, firms felt encouraged to take on more staff and boost their operating capacity. These chimed with positive business expectations for the year ahead; although a number of firms highlighted some concerns about the prospect of interest rate rises.

“Whilst the headline figures this month painted a positive picture, let’s not forget about the underlying pressures on building materials and manpower at supplier levels. Delivery times continued to lengthen a great deal and prices were pushed up. Pressure on suppliers needs to be watched if the sector wants to maintain a steady growth trajectory.”

The July 2014 Report on Construction will be published on: Monday 4th August 2014 at 09:30

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