August data indicated another strong improvement in the overall performance of the UK construction sector, as highlighted by steep and accelerated expansions of both output and new business volumes according to the latest Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®).

Construction companies also remain confident about the year-ahead outlook for business activity at their units, with around 46% of survey respondents expecting a rise and only 10% a reduction.

Adjusted for seasonal influences, the headline Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) registered 59.1 in August, up from 57.0 in July and above the neutral 50.0 value for the fourth consecutive month. The latest reading indicated a sharp rise in total business activity and the fastest pace of output expansion in the construction sector since September 2007.

Increased volumes of construction output reflected growth in all three broad areas of activity monitored by the survey in August. Residential construction remained the strongest performing sub-sector, with output rising at the fastest pace since June 2010. Meanwhile, commercial construction activity increased at the most marked pace since May 2012.

UK construction companies widely reported that the latest upturn in business activity was supported by a strong improvement in spending among clients. August data signalled that incoming new work increased sharply and at the fastest rate since March 2012. Anecdotal evidence from survey respondents generally cited higher levels of housing-related demand and greater levels of public sector infrastructure spending.

Higher levels of new business helped maintain confidence in the year-ahead outlook for construction output. August data pointed to a strong degree of positive sentiment regarding the prospects for business activity over the next 12 months. Construction companies mostly linked their confidence to improvements in the wider economy and resulting increases in clients’ willingness-to-spend. This in turn had a positive impact on job hiring in August, with construction employment rising for the third month running and at a solid pace.

Meanwhile, another strong expansion of business activity in August contributed to a robust rise in purchasing activity across the construction sector. The latest rise in input buying was the fastest since March 2012. Greater demand for construction inputs placed pressure on suppliers’ operating capacity, as highlighted by delivery times lengthening to the greatest degree since June 2007. Alongside this, August data signalled the fastest increase in average cost burdens since December 2011.

Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI®, said:
“The latest Construction PMI figures are yet another indication that the UK economy has performed impressively over the summer months. A steep upturn in civil engineering activity suggested that public sector demand has joined residential building as a key driver of construction output growth during August.”

Commenting on the report, David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said: “Builders have seen a step change in recent months and are now starting to show their true potential to the UK economy. Nowhere is this more true than in new business, where growth is at its second-strongest in almost six years, leading to more jobs and increasing confidence.

“This new direction brings new challenges, not least the prospect of additional work and insufficient capacity to meet demand. How the sector navigates these tensions and manages the supply chain could come to define its performance over the coming months.”