UK construction companies indicated a further moderate rise in business activity during June. This was highlighted by the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) posting 51.0, up fractionally from 50.8 in May and above the 50.0 no-change value for the second month running. The latest reading was the strongest since May 2012. Higher output levels were driven by a solid rate of new order growth in June, and this in turn contributed to rising employment levels in the construction sector during the latest survey period.

June data indicated that overall output growth in the UK construction sector was underpinned by a fifth consecutive monthly rise in residential building activity. Although housing activity was the strongest performing sub-sector in June, the rate of output expansion eased from May’s 26-month high.

Meanwhile, levels of business activity stabilised during June in the commercial and civil engineering sub-sectors, thereby ending four-month and five-month periods of decline respectively. In the civil engineering sector, companies suggested that new tender wins had supported output levels.

New business received by UK construction companies increased for the second month running in June. The rate of new order growth accelerated since May and was the strongest for just over a year. Anecdotal evidence pointed to signs of an upturn in underlying client demand and stronger levels of new work in the house building sector.

Higher levels of incoming new work boosted construction firms’ expectations for output over the next 12 months. June data indicated that around four times as many companies (41%) anticipate a rise in business activity as those that forecast a drop (10%). This meant that the overall degree of business confidence in the construction sector was the strongest since April 2012.

Improved expectations about the business outlook and rising levels of new work underpinned a rise in construction workforce numbers for the first time since February. Although the latest survey signalled only a moderate rise in employment levels, the rate of job creation was the most marked since September 2012.

Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI®, said: “June’s construction data is one of the final pieces in the puzzle when it comes to survey evidence for second quarter UK economic performance, and the sector’s upturn adds to the upbeat news flow ahead of Mark Carney’s first policy meeting at the Bank of England later this week.
“The improvement in overall construction output simultaneously raises chances of strong second quarter UK GDP growth, and reduces the likelihood of imminent additional policy stimulus from the Bank of England.

“Although the construction sector faces a long and fragile road to recovery, June’s survey highlights a nascent turnaround in optimism about future output levels in the sector. House building remains the mainstay of growth, helped by government incentive schemes, while it was also encouraging to see civil engineering and commercial building stabilise after protracted declines in 2013 so far.”

Commenting on the report, David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said:“A new dawn is emerging in the construction industry, with confidence of a sustained recovery beginning to build thanks to two months of consecutive output growth and the pace of new orders expansion hitting a 13 month high. Housing is the leading light sustaining last month’s performance, meanwhile commercial and civil engineering activity stabilised, arresting months of decline giving further cause for optimism.

“The strongest growth in new business orders for over a year is also driving employment upwards, resulting in confidence hitting its highest level since April 2012. This enthusiasm may also have been bolstered by the Government’s support for new house building. Whether expectations match reality, only time will tell.

“Suppliers still bear the scars of the recession, reflected in a lack of stock and limited capacity. Coupled with higher average cost burdens, this is placing pressure on supply chains and cost margins. This needs to be rectified, if the sector is to build on this momentum.”