UK construction PMI Sharp rise in construction output, but pace of expansion eases to slowest since October 2013

CIPS 4 June 2014

Sharp increase in UK construction output

Markit/CIPS UK Construction PMI®

Key points:
 House building remains strongest performing area of activity
 Weakest rise in commercial work for seven months

May data indicated another sharp increase in UK construction output, although the latest survey suggested that momentum continued to eased from the post-crisis highs seen earlier in the year. This was highlighted by the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) falling from 60.8 in April to 60.0 in May. The headline index was above the 50.0 no-change level for the thirteenth successive month, but the latest reading signalled the slowest pace of expansion since October 2013.

Slower overall construction output growth largely reflected a moderation in commercial building activity, with the latest expansion in this sub-category the weakest for seven months. Residential building remained the strongest performing area of activity, despite the pace of growth easing slightly to a three-month low. Meanwhile, civil engineering output increased at a robust rate that was faster than in April.

Anecdotal evidence widely linked the latest upturn in construction output to improving economic conditions and greater underlying demand, especially in terms of investment spending and new housing starts. May data pointed to another strong increase in overall new business volumes, although the rate of expansion eased since the previous month.

Higher levels output and incoming new work contributed to a rise in staffing levels for the twelfth successive month in May. The current period of construction sector job creation is the longest recorded since that seen from mid-2006 to early-2008. Increased payroll numbers partly reflected strong confidence regarding the 12-month outlook for the construction sector. More than half of the survey panel anticipate a rise in business activity over the year ahead, while only 4% forecast a reduction.

The latest survey pointed to another steep increase in demand for construction materials, with input buying rising at the fastest pace for three months. Moreover, supplier lead times lengthened markedly in May, with survey respondents widely noting shortages of stock and supply-chain bottlenecks.

Meanwhile, sub-contractor availability fell at the sharpest pace since August 1997, despite construction firms reporting a moderate decrease in the proportion of work undertaken by sub-contractors in May. Latest data also indicated that rates charged by sub-contractors increased at the steepest pace since the survey began over 17 years ago. There was nonetheless some slightly better news in terms of raw material costs during May, as construction companies indicated that input cost inflation eased for the third month running to its weakest since July 2013.

Commenting on the report, David Noble, Group Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said:
“UK construction activity has shown signs of moderation from the steep growth seen at the start of the year; but strong expansion in new business and improving economic conditions reflected particularly well on business optimism and outlook for the year ahead. Importantly, this was supported by a sharp increase in employment levels, an indication that this latest upturn will continue to expand.

“Residential house building has been leading the way with activity in May, still buoyant on the back of stronger new work and investment spending. In conjunction with a strong expansion of civil engineering activity, these performances were able to offset to a certain degree this month’s slower growth in commercial activity.

“Meanwhile, sub-contractor capacity fell to the strongest rate since August 1997 and delivery times continued to lengthen, as suppliers struggle to make up the gap in output. Consequently, with supply constraints still persisting, there are some concerns about how this prolonged period of growth can be sustained over the course of 2014.”


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