Fastest increase since March for Commercial Construction is the highlight of the latest Markit/CIPS report

July data signalled a slight overall loss of momentum across the UK construction sector, with business activity and incoming new work both expanding at slower rates than in the previous month. However the highlight was news that commercial activity rose at its fastest pace since March. 

The pace of job creation at construction companies nonetheless remained strong in July, while ongoing skill shortages across the sector contributed to a further steep reduction in sub-contractor availability. Moreover, sub-contractor charges once again rose at one of the fastest rates since the survey began in 1997.

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At 57.1 in July, the headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) eased slightly from June’s four-month high of 58.1. Higher levels of construction output have been recorded in each month since May 2013, but the latest reading was lower than the average seen over this period (59.4), thereby highlighting a general growth slowdown from the peaks seen in 2014. 

Residential building remained the fastest growing broad area of the construction sector, according to the latest survey data. However, residential building saw the greatest loss of momentum since June, with the latest upturn in housing activity the second-slowest since June 2013. Civil engineering activity also expanded at a slower pace in July. Meanwhile, work on commercial projects bucked the overall slowdown, with activity rising at the fastest rate since March. 

Companies that reported an increase in business activity mainly cited strong inflows of new work. Anecdotal evidence also suggested that improving domestic economic conditions had created greater opportunities to tender, especially for commercial projects, while some construction firms noted that the resumption of delayed projects had provided support to business activity levels in July. However, measured overall, new order volumes expanded at a slightly slower pace than the eight-month high recorded in June.

In line with the trend for output and new orders, July’s survey data pointed to an overall slowdown in employment growth across the construction sector. However, the rate of job creation remained much stronger than the long-run survey average and there were widespread reports of skill shortages across the sector. As a result, sub-contractor availability dropped for the twenty-fifth month running in July, which is the longest continuous period recorded by the survey for over a decade. The latest rise in sub-contractor charges was only fractionally slower than the survey-record high seen in April.

Meanwhile, there were signs that some supply chain pressures have started to subside, as construction companies were the least downbeat about vendor performance since May 2012. Nonetheless, strong underlying demand for construction materials and low stocks at suppliers continued to drive up input prices in July, with the overall rate of cost inflation reaching its highest level since March.
Looking ahead, UK construction companies are highly upbeat about their growth prospects over the next 12 months, with more than half (55%) expecting an increase in business activity and only 4% forecasting a reduction. However, the resulting Future Business Activity Index was down from June’s 11-year high and the lowest since April. 

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

“The sector almost held steady last month, though there will be some uneasiness over the housing sector exhibiting its second slowest activity growth in the last two years. Budget cutbacks and delayed decision-making will have had some impact on civil engineering activity and though housing is still a strong performer, commercial activity was the only area to see faster growth in July.

“New business wins were less in evidence as backlogs were tackled. Meanwhile, suppliers scrabbled to meet demand for a number of materials in short supply. The performance of suppliers continued to be muted, but the decline in performance was the least serious since May 2012. And though buying resumed at a slower pace, the response to new work and ongoing activity endured at a healthy rate.

“Overall the sector’s optimism was still strong, as staffing levels remained high in anticipation of future success, though issues around sourcing skilled individuals remained a thorn in the side of the sector.”