A turn up for the order books

UK construction companies achieved a stronger expansion of business activity levels during July, underpinned by the fastest increase in residential work for just over two-and-a-half years, according to the latest CIPS UK Construction Purchasing Managers’ Index.

The latest survey also indicated that new business growth gained momentum, which contributed to the largest rise in employment numbers since December 2015. Supply chain pressures continued in July, which contributed to another sharp lengthening of delivery times for construction products and materials. However, input cost inflation moderated from the nine-month high seen in June.

Survey respondents commented on improving demand conditions, higher volumes of new project starts and, in some cases, a degree of catch-up from the bad weather earlier in 2018.

House building was the best performing category of construction activity in July, with the latest upturn the strongest since December 2015. Commercial work also picked up at the fastest pace for just over two- and-a-half years.

July data pointed to the strongest increase in total new orders across the construction sector since May 2017. Survey respondents noted that a general improvement in client demand had led to successful contract negotiations on larger scale projects. Despite an upturn in tender opportunities, construction companies are cautious about the year-ahead business outlook. The degree of positive sentiment about future workloads was unchanged since June and remained weaker than the long-term survey average. Anecdotal evidence suggested that Brexit-related uncertainty continued to hold back business optimism in July.

The survey also tallied with the latest survey of product manufacturers, contractors, civil engineers and SME builders compiled by the Construction Products Association, which found that activity in the construction supply chain significantly picked up in the second quarter of 2018 as the industry began its catch-up of work lost due to delays related to Carillion and severe weather conditions in Q1.

The Construction Products Association’s Construction Trade Survey for 2018 Q2 shows that during the quarter, 20% of heavy side product manufacturers and 6% of civil engineering firms returned to growth, while the proportion of firms reporting an increase in Q2 activity rose for main contractors, light side product manufacturers and SME builders.

New orders data signal that the catch-up will continue in the coming quarters, driven by private housing, public housing and infrastructure, three sectors that account for £60 billion of output annually.