Post-election bounce in new construction orders

MarkitUK construction companies recorded a slight rebound in output growth during May, but this only partially reversed the loss of momentum seen in April ahead of the general election, according to new statistics.

The latest Markit/CIPS UK Construction PMI index made a small gain to 55.9 in May, up from 54.2 in April, but still a long way down on 60.1 in February. It follows a loss of growth momentum during March and April in the run to the election.

Looking ahead, business confidence across the construction sector picked up sharply over the month, with the degree of positive sentiment the highest since February 2006. According to survey respondents, this was driven by signs of a post-election bounce in clients’ willingness to spend, which in turn supported a further sharp upturn in employment levels.

David Noble, group chief executive officer at the Chartered Institute of Procurement & Supply, said: “The brakes are now off for the construction sector as it makes up some of the losses over the last few months with a steady and comfortable improvement.

“Though nothing like the highs of 2014, the quietly confident approach after the restraint displayed before the General Election, shows business confidence at its highest since February 2006.

“Of course the real strength and longevity of this new momentum will be played out in the coming months but the expectation is the sector is likely to trundle along rather than produce the same elevated progress of last year.”

He added: “Suppliers continue to experience pressure on their stocks, but extra capacity has come back on line and it seems like the worst phase of raw material shortages has passed.

“Input prices showed uplift after the lows of oil and raw materials costs that had been benefitting the sector for some time.

He added that firms had favoured in-house training of staff instead of subcontracting in labour who were in shorter supply and demanding higher wages.

Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: “May’s survey provides the first sign of a post-election bounce in the UK construction sector.

“With a sustained period of policy uncertainty no longer on the horizon, business confidence surged back to its highest level since early-2006.

“Additionally, construction firms experienced an upturn in new business growth from April’s near two-year low and job creation was the fastest recorded so far in 2015.

But Moore warned that despite a client spending rebound in May, all three key areas of construction activity have lost considerable momentum over the past 12 months.

“The scale of the construction slowdown since 2014 is such that it will not be fully reversed through the release of pent up demand after the election alone.

“Moreover, substantial supply chain pressures and acute subcontractor shortages persisted during May, especially across the house building sector, in turn driving up operating costs and hampering productivity gains at construction firms.”

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