Sharp rise in construction output in July

IHS Markit/CIPS UK Construction PMI reports fastest rise in output since October 2015

UK construction companies signalled a sharp and accelerated expansion of business activity during July, led by another strong increase in house building. New orders also picked up for the second month running, with survey respondents commenting on a boost to sales from easing lockdown measures and the restart of work on site.

At 58.1 in July, up from 55.3 in June, the headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index registered above the 50.0 no-change threshold for the second consecutive month. The latest reading signalled the steepest expansion of overall construction work since October 2015.

Residential building was the main growth driver in July, with activity increasing to the greatest extent since September 2014. Survey respondents commented on the release of pent-up demand and reduced anxiety among clients.

Commercial work and civil engineering activity both expanded at slightly quicker rates than in June. Growth was often attributed to the catch up of work that had been delayed during the coronavirus pandemic.

July data indicated the fastest rise in new orders since February, although the rate of expansion remained softer than that recorded for output levels. Some construction companies noted a gradual improvement in demand from the lows seen during the second quarter of 2020.

Construction firms are optimistic overall about the prospect of a recovery in business activity during the next 12 months. Around 43% of the survey panel expect a rise in output over this period, while only 30% forecast a fall. However, confidence moderated since June, which was linked to concerns about the economic outlook and a lack of new work to replace completed projects.

Tim Moore, economics director at IHS Markit, which compiles the monthly survey, said: ‘Construction companies took another stride along the path to recovery in July as a rebound in house building helped to deliver the strongest overall growth across the sector for nearly five years. Civil engineering and commercial activity are also back in expansion, which has been mainly due to the restart of work that had been delayed during the second quarter of 2020.

"Survey respondents noted a boost to sales from easing lockdown measures across the UK economy and reduced anxiety about starting new projects. However, new work was still relatively thin on the ground, especially outside of residential work, with order book growth much weaker than the rebound in construction output volumes.’

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), added: ‘After a summer of this blistering return to growth, building companies should prepare for a chilly autumn as furlough schemes come to an end and the real strength of the UK economy is revealed. Making up for lost time is one thing, but sustainable real growth is what the sector needs otherwise this recovery is just building on soft sand.’