May data signalled strengthening of activity growth in UK construction sector

Key points:

• Rise in activity supported by marked new order expansion.
• Employment increased, ending a ten-month sequence of job cuts.
• Higher raw material prices continued to drive cost inflation.

Summary:

May data signalled a solid expansion of activity in the UK construction sector, with the seasonally adjusted Markit/CIPS Construction Purchasing Managers’ Index® (PMI®) posting 54.0, from 53.3 in April. While the latest reading pointed to a stronger increase of activity in May, the index remained below the Q1 average. A further rise in new business and the release of previously moth-balled projects supported the latest expansion in UK construction activity. Furthermore, employment was reported to have increased, albeit only modestly. Meanwhile, business prospects are expected to improve, with the degree of positive sentiment improving to a one-year high.

 

Sarah Ledger, Economist at Markit and author of the UK Construction PMI® said:

“Construction sector activity grew again in May, with the rate of expansion accelerating slightly since April. Moreover, new order growth was marked, suggesting that increasing levels of output will be sustained.

“A look at the sub-sectors monitored shows a mixed picture, with levels of civil engineering activity down markedly, but a return to growth for housing. Commercial output growth was broadly consistent month-on-month, with the average for the quarter so far outpacing that of Q1.

“Positive sentiment regarding future business activity rose to a one-year high, although concerns over public sector spending cuts continue to weigh on confidence.”
Commenting on the report, David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said:

“The millstone of public spending cuts can be seen clearly in this month’s construction PMI, but aside from the unsurprising decline in civil engineering activity, the overall figures are not quite so foreboding.

“Sustained growth of commercial activity and reports of an unblocking of order books is much needed good news. It remains to be seen whether a marked expansion of commercial projects will help to replace what has been lost elsewhere in the coming months, but it has contributed to a small improvement in confidence. This is further reflected by the fifth month of rising purchasing activity, and the first – albeit modest – growth in employment for eleven months.

“It's encouraging to see a return to growth in the housing sector after April’s blip but there may be a long way to go before underlying demand for new properties, whether purchase or rental, takes the edge off market volatility.”