Growth in construction suggests economy is getting back on track

BUILDERS are increasingly busy with construction demand up strongly last month, adding to growth in the manufacturing sector and further raising hopes that the economy is back on a firm footing after a wobbly start to 2017.

Home construction work rose at its fastest pace since the end of 2015, according to the Purchasing Managers’ Index (PMI), a survey of businesses conducted by IHS Markit.

The PMI rose sharply to 56 in May, from 53.1 in April. Scores above 50 indicate an increase in business activity. It suggests the construction sector is expanding at its fastest pace for 17 months.

“After years of sluggish house building, the construction sector has snapped back into action in May,” said Duncan Brock at the Chartered Institute of Procurement & Supply. “The unexpected recovery in construction has been felt most acutely in residential housing as builders finally feel able to respond to demand for new homes. The sector had been held back by the rising cost of raw materials but after months of tense negotiations with suppliers, input prices are starting to stabilise.”

Such is the uptick in construction that companies could soon struggle to meet the rising demand. “This marks what could be a significant Brexit bounce-back. However, it is not all plain sailing from here,” said Mark Robinson, chief executive of Scape Group, a public-sector procurement group.

“A rapid upturn in new work could ramp up the workforce pressures many suppliers are already struggling with in the wake of the momentous skills crisis. The need to rapidly up-skill the nation will be top of the in-tray for the next government, and failure to address it could be economically costly and politically toxic, regardless of which party takes office on June 9.”

It adds to indications that the economy may be picking up pace – the manufacturing PMI for April and May was higher than in the first three months of the year, raising hopes that GDP growth could accelerate from the 0.2pc expansion it recorded in the first quarter.

However, most of the private sector operates in the services industry, and those numbers will only be published on Monday. Services performed strongly in April but economists fear there could be a drop in May.

“The service sector continues to face the challenge of rising inflation hitting real incomes,” said James Pomeroy at HSBC. “Unlike the manufacturing sector, which is benefiting from the weaker pound and stronger global demand, services are more dependent on UK consumer demand. So we expect the index to slip back.”