Markit/CIPS UK Construction PMI released for July

Commercial project activity increased during slight overall slowdown.

July’s Markit/CIPS UK Construction Purchasing Manager’s Index (PMI) has been released this morning, and the results show an slight slowdown in construction output.

The headline seasonally adjusted PMI in June was a four-month high figure of 58.1. This has now eased slightly to 57.1, which is also lower than the average rate since May 2013 (59.4).

As with manufacturing though, the latest PMI is still higher than the neutral level of 50.0 which indicates no growth at all.

Results from the latest index vary for the industry. Residential building has always been the bedrock of the construction industry’s strength, especially in a time when the government is particularly keen to push new housing starts.

However, the momentum of residential building slowed from June’s level, and the upturn was actually the second slowest since June 2013. In addition, civil engineering activity expanded, albeit at a slower rate than June.

But work on commercial projects rallied against the general trend, showing an activity rise at its fastest rate since March.

New order volumes saw a slower expansion than the eight-month high experienced in June.

But companies that said business activity increased attributed it to strong inflows of new work, while others said better domestic conditions had resulted in greater opportunities to tender, which was especially the case for commercial projects. This goes some way to explaining why commercial activity increased at its fastest rate since March.

Others reported activity increases through the resumption of delayed projects.

Despite an overall slowdown in some sectors, July’s PMI showed that job creation has remained stronger than the average suggested, which included skills shortages across the sector.

The availability of subcontractors decreased – a direct result of the skills shortage – but they were able to charge more because of the demand they are in. It led to one of the fastest rates of price increase since the survey started back in 1997, and only slightly slower than the record high seen in April 2015.

Again, even though there was a slight slowdown in construction output, the industry in general seems upbeat about the future, with 55% expecting an increase in business activity over the next 12 months.

Tim Moore, Senior Economist at Markit, spoke about the latest PMI. He said: “July’s growth slowdown is the first for three months and perhaps a sign that the post-election impact on construction confidence has started to diminish.

“Reflecting this, UK construction firms’ business activity expectations motivated from June’s 11-year peak but remain strong overall.

“Commercial activity was a key growth driver during July, which partly offset ongoing weakness in civil engineering and softer residential building trends. Sustained growth across the UK economy so far this year has firmed up demand for commercial building work, with construction companies noting a particularly strong appetite for new development projects among clients.

“Survey respondents commented on a variety of growth constraints afflicting the residential building sector, including long lead-in times for new projects, scarce supplier capacity, skill shortages and stretched subcontractor availability.

“Added to this, building costs rose at an accelerated pace in July and subcontractor charges increased at one of the fastest rates since the survey began in 1997.”

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