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The strongest construction output growth since June 2010 is being led by a surge in housing activity according to the latest Markit/CIPS UK Construction Purchasing Managers’ Index® published today.

UK construction companies indicated that the rebound in output levels during the second quarter of 2013 was maintained into July. Moreover, the latest Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) survey signalled that growth of both business activity and incoming new business accelerated sharply since the previous month. This in turn resulted in a solid increase in construction employment levels and the strongest degree of positive sentiment about future output since May 2010.

At 57.0 in July, up sharply from 51.0 in June, the seasonally adjusted PMI® pointed to a robust and accelerated expansion of overall business activity in the construction sector. The index was above the 50.0 no-change value for the third month running, and the latest reading signalled that the rate of output growth picked up to its fastest since June 2010.

Higher levels of business activity were recorded in all three broad areas of the construction sector monitored by the survey in July. However, residential building activity was by far the strongest performing category, with output growth surging to its steepest since June 2010. Growth of housing activity has now been recorded for six months running. Meanwhile, civil engineering activity returned to expansion in July, and commercial construction output rose at the most marked pace since May 2012.

The latest upturn in construction output led to a sharp rise in purchasing activity in July. There were signs that this placed further strains on suppliers to the construction sector, with lead-times lengthening to the greatest degree since June 2007, while cost inflation picked up to its fastest for nine months.

Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI®, said: “July’s survey highlights a new wave of optimism across the UK construction sector, with companies reporting a pace of expansion in excess of anything seen over the past three years. The swing back to output growth broadened to include commercial and civil engineering activity during July, although housing construction remains the one thing crucial to the sector’s strong upturn at present.

“Construction firms saw the fastest improvement in new orders for over a year, which helped kick-start job creation and input buying growth during July. A switch to sharply rising purchasing activity may have caught some suppliers by surprise, as delivery times lengthened to the greatest degree in over seven years.”

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said:“Homes are the beating heart of this rapid recovery in the construction sector, backed by a solid expansion in civil engineering and commercial activity. Better economic conditions, a jump in new business activity and the strongest level of confidence since the era of austerity began in 2010, strongly suggest this growth can be sustained into Q3.

“This rising confidence goes hand in hand with increasing output, underpinned by the expansion in new business orders, which was the steepest since April 2012. As a result, firms are starting to believe this is the real deal for the recovery, demonstrated by the strongest pace of job creation since December 2011.

“One constraint on the sector is the pressure on suppliers to meet the sharp rise in demand. Suppliers have been surprised by the speed and scale of the revival leading to lengthy delivery times due to a shortage of capacity based on hard learnt lessons over the past few years. This will be something to watch in the coming months.”