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UK construction picks up slightly in August

Recovery in the UK construction sector continued into August with business activity and employment levels both expanding at a strong pace, according to the latest Markit survey.

UK construction picks up slightly in August

House building remained the fastest pace of expansion in the month, while commercial activity reached its strongest activity since March. Civil engineering was the weakest of the three broad sectors monitored by the survey, with the latest rise in output the slowest for three months.

The headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) registered 57.3 in August, up from 57.1 in July and well above the neutral 50.0 threshold.

Higher levels of business activity have been recorded in each month since May 2013, which represents the longest period of sustained growth for seven-and-a-half years. However, the index continued to signal a softer growth path than that recorded throughout 2014.

Survey respondents were generally upbeat about underlying market conditions and the number of opportunities to tender. However, some firms noted that capacity constraints at their business units had held back their ability to take on new work and, in some cases, allowed them to become more selective about development opportunities.

More than half of the survey panel (53%) anticipate a rise in business activity over the next 12 months, while only 5% forecast a reduction. Although the degree of optimism remained below June’s 11-year high, the latest reading was comfortably above the long-run survey average.

Increased workloads and impending new project starts in turn contributed to a robust rate of job creation in August. The current period of staff hiring now stretches to 27 successive months, which is the longest recorded by the survey for just over nine years. Sub-contractor usage also picked up again, with the pace of expansion the fastest since February.

The latest survey highlighted that sub-contractor charges rose sharply, but the rate of inflation slipped to its lowest since April 2014. Meanwhile, lower oil-related prices contributed to the weakest overall rate of cost inflation for four months in August.

Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI®, said: “UK construction companies remained on a reasonably strong growth footing in August, helped by a sustained recovery in both residential and commercial building activity. Meanwhile, there was another loss of momentum for civil engineering, which brought output growth within this sub-sector further below the multi-year highs seen in 2014.

“The construction sector maintained its position as a strong engine of job creation in August, as permanent staff numbers and sub-contractor demand both picked up over the month. However, the surge in construction workloads over the past two-and-a-half years has created substantial skill shortages across the sector, with survey respondents reporting ongoing staff recruitment difficulties this summer.

“There was some encouraging news in terms of construction materials availability, as firms reported the lowest pressure on delivery times for over three years, helped by rising inventories and a rebound in supplier capacity.”

About Fiona Russell-Horne

Fiona Russell-Horne
Group Managing Editor across the BMJ portfolio.

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