The latest Markit CIPS UK Construction Purchasing Managers’ Index (PMI) survey reports that UK construction companies remained in recovery mode during August, with business activity and employment levels both expanding at a strong pace.

The survey showed that there were also some encouraging signs that strains on raw material availability have started to subside. Survey respondents noted that rising levels of supplier capacity, alongside lower fuel and energy costs, had helped restrain overall input price inflation in August.

The headline seasonally adjusted PMI registered 57.3 in August, up from 57.1 in July and well above the neutral 50.0 threshold.

Of the three broad sectors monitored by the survey, the fastest pace of expansion was in residential construction. Growth of commercial work also accelerated since the previous month, reaching its strongest since March. Survey respondents widely
linked the latest upturn to improving economic conditions and strong demand from private sector clients.

August data pointed to a solid expansion in new business intakes across the UK construction sector, but the rate of growth eased to its least marked since May. Survey respondents were nonetheless generally upbeat about underlying market conditions and the number of opportunities to tender. Some firms simply 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.

Looking ahead, 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. Subcontractor usage also picked up again, with the pace of expansion the fastest since February.

The latest survey highlighted that subcontractor 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: “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.”
David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said: “The construction sector picked itself up a little more this month as overall activity stepped up. Housing remained the strongest driver of growth in addition some reported new impetus in the commercial sector.

“Capacity restraints limited some companies in their determination to actively chase new business, using their resources to fulfil current commitments. Some raw material shortages were still in evidence as suppliers were challenged to get their act together and keep pace.

“Any further obstacles hampering strong progress were around the lack of available skilled staff as subcontractors were still highly sought-after and offered higher wages. But, the rise in the level of permanent posts and employment generally rising for the last 32 months, confirmed an optimism displayed by more than half of the survey respondents.