Strong recovery in construction as orders increase at the fastest rate since 1997

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The UK construction sector remains on a strong recovery path, with output growth reaching its strongest since September 2014, according to the latest IHS Markit/CIPS UK Construction survey.

New order volumes increased at the fastest pace since the survey began just over 24 years ago. Input cost inflation was also at a survey-record high during May, reflecting a surge in demand for construction materials and severe supply shortages.

At 64.2 in May, up from 61.6 in April, the seasonally adjusted IHS Markit/CIPS UK Construction PMI Total Activity Index registered above the 50.0 no-change value for the fourth consecutive month and signalled the strongest rate of output growth for just under seven years.

House building  was the best-performing category of construction activity in May, followed by commercial work.

The latest increase in work on commercial projects was the steepest since August 2007, reflecting strong demand conditions following the reopening of customer-facing areas of the UK economy. Civil engineering activity also increased sharply during May, although the pace of expansion eased slightly since the previous month.

The latest survey pointed to a rapid upturn in new business across the construction sector. Around 47 per cent of the survey panel reported higher volumes of new work, while only 11 per cent signalled a reduction.

Construction companies attributed the surge in order books to strong demand for residential building work and high levels of confidence about the near term economic outlook.

New project starts and a sustained recovery in construction workloads resulted in another marked rise in staffing numbers during May. The rate of job creation was the fastest since July 2014 and the use of sub-contractors  increased at a survey-record pace.

Mirroring the trend for order books, latest data indicated a steep upturn in purchasing activity across the construction sector.

Some firms also noted that input buying had been boosted by efforts to build inventories in response to supply shortages.

Suppliers’ delivery times lengthened sharply in May, with the downturn in vendor performance the second-steepest since the survey began (exceeded only by that seen in April 2020). Stretched supply chains and steep rises in raw material prices contributed to a rapid increase in average cost burdens.

The overall rate of input price inflation was the highest in just over 24 years of data collection.

Construction companies remain highly upbeat about their growth prospects for the next 12 months. Around 61 per cent of the survey panel predict a rise in business activity, while just eight per cent anticipate a decline. Positive sentiment was mostly attributed to resurgent customer demand, alongside optimism about the UK economic outlook following the successful vaccine roll out.