UK construction activity unexpectedly improves

Activity in the UK’s construction sector beat forecasts for the second month in a row in May, according to a key survey of the sector which suggests growth is picking up after a weak start to the year.

The purchasing managers’ index for the sector – which accounts for around 6 per cent of economic output – came in at 56, compared to the previous month’s 53.1.

Economists had expected the figure to slide to 52.6, but a sharp increase in residential work meant companies were more optimistic than had been predicted.

However respondents remained cautious about the potential impact of economic uncertainty, which they said was acting as a brake on client spending.

IHS Markit’s surveys give an indication of the general health of a sector based on factors such as new orders, employment and delivery times, and are seen as useful early indicators of growth.

Construction has consistently been the weakest of the three sectors covered by the PMI surveys in recent months, with a shortage of skilled workers causing particular difficulties for many companies. However the headline figure was comfortably above the 50 level that indicates expansion.

Tim Moore, IHS Markit senior economist, said:

"May’s survey data reveals that the UK construction sector has started to recover strongly from its slow start to 2017. Housebuilding was the key growth driver, with work on residential projects rising at the fastest pace since December 2015. A sustained rebound in residential building provides an encouraging sign that the recent soft patch for property values has not deterred new housing supply. Instead, strong labour market conditions, resilient demand and ultra-low mortgage rates appear to have helped boost work on residential development projects in May"