Growth in the UK construction sector accelerated as the second half of the year began, with July seeing much faster increases in both activity and new orders during the month. In contrast, firms ramped up purchasing activity and raised staffing levels for the third month running. Higher demand for inputs put some pressure on supply chains, and input costs rose at a faster pace.
The UK Global Construction Purchasing Managers’ Index (PMI) – a seasonally adjusted indicator that tracks changes in overall industry activity – rose sharply to
55.3 in July from 52.2 in June. The reading signalled a notable monthly expansion in overall activity in the construction sector, extending the current sequence of growth to five months. Moreover, the rate of expansion was the fastest since May 2022
All three categories of construction saw activity increase in July as work on housing projects returned to growth. Business activity increased strongly, but the fastest expansion was in civil engineering activity, where the rate of growth accelerated to its highest level in nearly two and a half years. According to respondents, success in securing new orders was the main factor driving construction activity higher at the start of the third quarter.
New work expanded for the sixth month running, at a notable pace that was the strongest since April 2022. Alongside the general improvement in market demand, there were also reports that customer confidence had strengthened, making them more willing to launch previously stalled projects. Increased workloads prompted construction firms to expand both purchasing and hiring activity at a faster pace in July. Hiring levels were high for the third month running, at a steady pace that was the fastest in a year.
Sufficient stocks to keep up with orders
Meanwhile, the strong rise in purchasing activity was the most significant and demand for inputs increased significantly in nearly two years. The increased demand for inputs put some pressure on suppliers in July, resulting in generally flat delivery times during the month. This ended a 16-month streak of improved supplier performance.
Respondents also reported problems with manufacturing and transportation. On the other hand, some respondents indicated that suppliers had sufficient stocks to keep up with demand. Meanwhile, the rate of inflation in input costs showed signs of recovery as suppliers raised prices in line with stronger demand.
The strong increase in input costs was the fastest in 14 months, matching that seen in January. However, the rate of inflation was still much weaker than the series average. Subcontractor utilization rose for the fourth month in a row, and at a strong pace. Although subcontractor availability continued to increase significantly, the latest rise was the least pronounced since June 2023. Prices charged by subcontractors also increased modestly again. Construction firms remained strongly optimistic that activity will expand over the coming year, although sentiment fell to a three-month low in July. Improved customer confidence is expected to help drive new order growth and hence activity. New product development is also expected to support activity. Nearly 53% of respondents expect activity to rise over the next 12 months. The UK Construction PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 150 construction companies. The panel is ranked by the size of the company’s workforce, based on contributions to GDP. The survey data was first collected in April 1997.
S&P Global and the PMI
Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month. A diffusion index is calculated for each survey variable. The index is the sum of the percentage of “up” responses and half the percentage of “unchanged” responses. The indexes can range from 0 to 100, with a reading above 50 indicating an overall increase compared to the previous month and below 50 indicating an overall decrease.
The indexes are then seasonally adjusted. The headline figure is the Total Activity Index. It is a diffusion index that tracks changes in the total volume of construction activity compared to the previous month. The Total Activity Index is comparable to the Industrial Production Index and the Service Business Activity Index. It may be referred to as the “Construction PMI” but is not comparable to the headline Manufacturing PMI.
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