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Weak rise in housing activity slows construction output growth

Construction output growth slowed in July following June’s four-month high with residential building expanding at one of its weakest rates since 2013, according to the latest Markit survey.
The headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) eased slightly from June’s 58.1 to 57.1 in July.

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), highlighting a general growth slowdown from the peaks seen in 2014.

Residential building saw the greatest loss of momentum since June, with the latest upturn in housing activity the second-slowest since June 2013, though it remained the fastest growing broad area of the construction sector.

Civil engineering activity also expanded at a slower pace in July, while work on commercial projects bucked the overall slowdown, with activity rising at the fastest rate since March.

The survey suggests 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.

UK construction companies remain 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.

Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI®, said:

“July’s growth slowdown is the first for three months and perhaps a sign that the post-election impact on construction confidence has started to diminish. Reflecting this, UK construction firms’ business activity expectations moderated from June’s 11-year peak but remain strong overall.

“Commercial activity was a key growth driver during July, which partly offset ongoing weakness in civil engineering and softer residential building trends. Sustained growth across the UK economy so far this year has firmed up demand for commercial building work, with construction companies noting a particularly strong appetite for new development projects among clients.

“However, residential activity expanded at one of the slowest rates for over two years, highlighting that the house building sector is struggling to gain momentum despite supportive demand conditions.

“Survey respondents commented on a variety of growth constraints afflicting the residential building sector, including long lead-in times for new projects, scarce supplier capacity, skill shortages and stretched sub-contractor availability. Added to this, building costs rose at an accelerated pace in July and sub-contractor charges increased at one of the fastest rates since the survey began in 1997.”

About Fiona Russell-Horne

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

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