Construction output holds firm but fears looking ahead

● PMI reaches 52.5 in May, exceeding forecast 52 reading ● Outlook ‘shakylooking’ amid likes of cost pressures

Output in the construction industry held steady in May, as firms continued to play catchup from a period of severe weather in the first quarter.

The Markit/cips UK construction purchasing managers’ index (PMI) remained at 52.5 last month, beating consensus estimates that predicted a reading of 52. A reading above 50 indicates growth.

Commercial activity improved, but there was slower growth in both residential and civil engineering projects.

Housebuilding remained the strongest sub-sector in the industry with a PMI of 55.7, as compared to 52.2 and 50.6 for the commercial and civil engineering sectors respectively.

Sam Teague, economist at IHS Markit, said the figures for May “signalled an unchanged pace of activity growth across the UK’S construction sector since April’s somewhat underwhelming rebound, yet nevertheless indicating a recovery in the second quarter after the contraction seen at the start of the year”.

Some companies said the unusually good weather helped them to rebound from the hit they experienced from the Beast from the East.

However, purchasing costs rose sharply last month, registering the steepest rate of price inflation since February. This was due to higher costs for fuel, plastic and steel-related products. Supplier delivery times worsened, with some businesses complaining that suppliers were short of materials, and job-creation slowed to a four-month low, with companies citing a shortage of skilled workers.

New order books slipped into decline during May, falling for the fourth time in the pastfivemonths.respondents said political uncertainty and a weaker retail sector knocked demand for new construction projects.

Teague added: “Companies frequently noted that Brexit uncertainty and fragile business confidence led clients to delay building decisions in May. With new order books deteriorating and cost pressures picking back up, it’s not surprising to see construction firms taking a dimmer view of prospects and pulling-back on hiring, all of which makes for a shaky-looking outlook.”

Samuel Tombs, chief economist at Pantheon Macroeconomics, said: “The long investment time horizons for both commercial and civil engineering projects mean that both sectors likely will remain depressed until some clarity emerges over the UK’S long-term relationship with the EU.”

Duncan Brock, group director at Cips (the Chartered Institute of Procurement and Supply), said higher fuel prices, raw material shortages, and increased labour costs combined with slow delivery times further hampered growth “as firms nervously assessed their workforce for much-needed talent, and sub-contractors could name their price”.