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UK construction activity grows at fastest rate in nearly 7 years

Activity in the UK construction sector grew in May at the fastest rate in nearly seven years amid a record jump in new orders, according to a survey released on Friday.
The IHS Markit/CIPS construction purchasing managers’ index rose to 64.2 from 61.6 in April, coming in ahead of consensus expectations of 62.3.

A reading above 50.0 indicates growth, while a reading below signals contraction.

The survey found that new order volumes increased at the fastest pace since the survey began just over 24 years ago. Housebuilding was the best-performing category, ,with the index for that rising to 66.3 from 61.2, followed by commercial work, the index for which ticked up to 64.4 in May from 62.2 in April.

Tim Moore, economics director at IHS Markit, said: “UK construction companies reported another month of rapid output growth amid a surge in residential work and the fastest rise in commercial building since August 2007. Total new orders increased at the strongest rate since the survey began more than two decades ago, but supply chains once again struggled to keep pace with the rebound in demand.

“There were widespread reports citing shortages of construction materials and wait times from suppliers lengthened considerably in comparison to those seen during April. Imbalanced supply and demand led to survey record increases in both purchasing prices and rates charged by sub-contractors.”

Moore noted that despite severe challenges with materials availability, construction firms remain highly upbeat about their near-term growth prospects.

“Nearly two-thirds of the survey panel forecast an increase in output during the year ahead, while only one-in-thirteen forecast a decline,” he said.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said Markit’s construction survey is a “carbon copy” of the manufacturing and services surveys.

“Both the commercial and civil engineering sectors are benefiting from the rebound in business confidence, which has resulted in many firms giving the go-ahead to mothballed projects,” he said.

“Looking ahead, however, growth likely will start to slow as supply-side constraints bite. Output in March was only 0.3% below its 2019 average, and the further recovery in output since then has led to raw material and labour supply problems. Indeed, the balance relating to the rates charged by sub-contractors leapt to a record-high 70.8 in May, from 63.6 in April, while the input price index rocketed to an unprecedented 94.1, from 84.6. When construction businesses pass on these higher costs to end customers, demand likely will start to cool off.”

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