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Firing On All Cylinders

September 2, 2014

The latest Markit/CIPS survey displays the previous recovery continues but with shortages in materials and skills persisting too

 

The August data indicated a continued strong recovery in UK construction output, driven by sharp rises in housing, commercial and civil engineering activity.

At 64.0 in August, up from 62.4 in July, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Indexremained well above the neutral 50.0 threshold and signalled the fastest overall increase in output levels since January. The latest reading also pointed to the second-strongest rate of output expansion since the pre-recession peak seen in August 2007.

A sustained upturn in workloads and widespread confidence towards the business outlook resulted in another rapid upturn in employment numbers. However, greater demand for staff also contributed to a survey record decline in sub-contractor availability, as well as the steepest rise in rates charged by sub-contractors since the survey began in April 1997.

Acording to the survey, the ‘steep increase in construction output reflected strong contributions from all three broad areas of construction in August’.

Residential construction posted the fastest rise in activity, despite the pace of expansion moderating slightly to a three-month low. Civil engineering activity increased at the strongest pace since March, while growth of commercial construction again was close to its fastest since the summer of 2007.

Strong gains in incoming new work were recorded during August, so prolonging the current period of continuous new business growth to 16 months. Survey respondents cited improving economic fundamentals and a corresponding rise in clients’ willingness to commit to new construction projects as behind the better picture. As a result, construction firms remain highly upbeat about the prospects for output growth over the year ahead, with more than half (59%) expecting a rise in business activity and only 7% forecasting a decline.

Construction firms hired staff at a strong rate in August, with the pace of job creation only slightly less marked than the survey record high seen in July. Additionally, sub-contractor usage picked up sharply and at the fastest rate since the survey began in April 1997. This, in turn, contributed to a survey record drop in sub-contractor availability and a much steeper increase in rates charged by sub-contractors.

“A broad based upturn in construction demand has created a boom in job creation this summer, as construction companies look to replace capacity lost in the aftermath of the recession,” explained Tim Moore, Senior Economist, Markit and author of the Markit/CIPS Construction PMI. “However, acute skill shortages meant that sub-contractor charges rose at the fastest pace since the survey began in 1997. Meanwhile, sub-contractor availability fell at a survey record pace, which could act to further ignite pay pressures in the short term.”

 

Caption-                Performance indicators remain favourable but underlying problems over sub-contractor availability and costs might start to become headaches.

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