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UK construction sector makes hay in sunshine

By Oliver Haill

Date: Thursday 02 Aug 2018

UK construction sector makes hay in sunshine

(Sharecast News) - UK construction activity last month picked up to its strongest level in over a year on the back of a strong level of house building and better weather, a survey from IHS Markit revealed on Thursday.
The construction purchasing managers' index rose to 55.8 for July from 53.1 the month before, indicating the highest level of construction output since May 2017 and beating economists forecasts of a decline in the PMI to 52.8.

Residential building growing at the fastest rate since December 2015 was a key driver, while new business growth across the sector gained momentum and contributed to the largest rise in employment numbers in that same two-and-a-half year period.

Some construction companies reported that they were busy making up for work postponed due to bad weather earlier in the year, but most reported that underlying demand was picking up too.

New orders across the sector benefitted from a general improvement in client demand had led to successful contract negotiations on larger scale projects, though construction companies remained cautious about the year ahead.

However, while supply chain pressures continued to slow delivery times, input cost inflation pulled back from the previous month's nine-month high.

As well as housebuilding, commercial work also picked up at the fastest pace since the end of 2015, while civil engineering activity improved but increased only moderately as companies complained of a lack of work to replace completed projects, particularly railway infrastructure work.

"While the recent rebound in construction work has been flattered by its recovery from a low base earlier in 2018, there are also signs that underlying demand conditions have picked up this summer," said IHS Markit associate director Tim Moore.

He stressed that construction companies continued to endure "substantial" cost pressures, driven by rising fuel bills and higher prices for steel-intensive items.

Economist Sam Tombs at Pantheon Macroeconomics said the construction PMI's 15-month high "is a surprising development, given the continued deadlock in Brexit talks".

"Confidence among builders, however, remained below its long-run average, and their caution is warranted," he said. "The MPC's likely decision to raise Bank Rate today will ripple out to new mortgage rates, taking the edge off the recovery in housebuilding."

He said the outlook for the commercial sector still is highly sensitive to Brexit talks and continued uncertainty throughout the second half of this year likely will cause many firms to delay expansion plans, while the planned 5.4% reduction in public sector gross investment this year will continue to depress the civil engineering sector.

"As a result, we still think it's too soon to look for a sustained revival to emerge in the construction sector."





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