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Construction output rebounds post election

Construction output rebounds post election
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23 Jun 2015

Business confidence across the construction sector picked up sharply over the month of May

The latest Markit/CIPS UK Construction PMI report has revealed that UK construction companies recorded a slight rebound in output growth during May, but this only partially reversed the loss of momentum seen in April ahead of the general election.

Business confidence across the construction sector picked up sharply over the month, with the degree of positive sentiment the highest since February 2006. According to survey respondents, this was driven by signs of a post-election bounce in clients’ willingness to spend, which in turn supported a further sharp upturn in employment levels.

The headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) registered 55.9 in May, up from 54.2 in April and well above the neutral 50.0 threshold.

That said, the latest reading was still the second lowest since June 2013. Anecdotal evidence suggested that weaker new business gains during March and April had acted as a drag on overall output growth in May.

Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: “May’s survey provides the first sign of a post election bounce in the UK construction sector. With a sustained period of uncertainty no longer on the horizon, business confidence surged back to its highest level since early 2006.

“Additionally, construction firms experienced an upturn in new business growth from April’s near two year low and job creation was the fastest recorded so far in 2015.

“However, it is far from certain whether the relief rally in construction confidence will usher in a lasting turnaround in output volumes on the ground.

“Despite a client spending rebound in May, all three key areas of construction activity have lost considerable momentum over the past 12 months. The scale of the construction slowdown since 2014 is such that it will not be fully reversed through the release of pent up demand after the election alone.

“Moreover, substantial supply chain pressures and acute sub-contractor shortages persisted during May, especially across the UK house building sector, in turn driving up operating costs and hampering productivity gains at construction firms.”

David Noble, group CEO at the Chartered Institute of Procurement & Supply, said: “The brakes are now off for the construction sector as it makes up some of the losses over the last few months with a steady and comfortable improvement.

“Suppliers continue to experience pressure on their stocks, but extra capacity has come back on line and it seems like the worst phase of raw material shortages has passed. Construction companies also reported wages were also on the rise, but from a low base after the pummelling the sector took during the recession.

“Firms favoured in-house training of staff instead of sub-contractors who were in shorter supply and demanding higher wages, demonstrating business confidence in the future of the sector and the ability to meet future demand.”

News source: Courtesy of Glass & Glazing Magazine