UK construction activity surprisingly surges to 17-month high

UK construction activity improved much more than expected in May, according a Markit survey published on Friday.

The Markit/CIPS UK construction purchasing managers' index jumped to 56.0, a 17-month high, rebounding from 53.1 when the market had expected it to fall to 52.6.

Helping the index was the fastest upturn in residential building work since the end of 2015, Markit said, as well as a recovery in new work after a soft first quarter.

Survey respondents cited a strong pipeline of new development projects and resilient underlying demand, while others reported solid rises in civil engineering and commercial building.

While import prices continued to push up costs, the rate of input price inflation continued to ease from January's peak.

"Despite the improvement in new work, construction firms noted that heightened economic uncertainty continued to act as a brake on client spending," Markit said.

Senior IHS Markit economist Tim Moore said: “House building 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 a 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."

Economist Sam Tombs from Pantheon Macroeconomics said the PMI rising to its highest level since December 2015 suggests that the referendum’s dampening influence on construction activity is fading.

"Note, however, that the PMI has had to exceed 53 in the past to signal growth. May’s PMI reading, therefore, is consistent with quarter-on-quarter growth in construction output of only about 0.5%," he said, noting that other surveys have been downbeat.

The European Commission’s economic sentiment survey reported builders’ confidence and orders books in May were at their worst levels since August.

Looking ahead, while housebuilding should remain supported by low mortgage rates and the Help to Buy equity loan scheme, Tombs continued to fear that commercial construction work will tail off again as the point of the UK’s E.U. exit in 2019 draws nearer.