UK construction sector sees ‘post-election bounce’ as optimism soars

Housebuilding has fueled a rebound in Britain’s construction industry and pushed optimism among firms up to its highest level since 2006.

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Confidence among UK construction businesses climbed to its highest in almost a decade in May as the Conservatives’ decisive general election victory triggered a “post-election bounce” in the sector.

Housebuilding led the rebound, according a survey from consultancy firm Markit, as companies that had put-off projects in the run-up to May’s poll started to spend again.

Optimism across the sector picked up sharply, with positive sentiment reaching its highest level since February 2006.

The Markit/CIPS construction purchasing managers’ index (PMI) stood at 55.9 in May, up from 54.2 in April. This was well above the 50 threshold that signals growth. It was also higher than economists had been expecting.

The survey showed a return to growth in civil engineering work, while commercial building work expanded at its slowest pace in almost two years.

“May’s survey provides the first sign of a post-election bounce in the UK construction sector,” said Tim Moore, an economist at Markit. “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.”

However, Mr Moore said it was “far from certain whether the relief rally in construction” would translate into “a lasting turnaround in output volumes on the ground”.

“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.”

Data on Monday showed Britain’s manufacturing sector grew at a slower pace than expected in May, dampening hopes for a big rebound in the second quarter.

The UK economy grew by 0.3pc in the first three months of this year, as Britain’s yawning trade deficit exerted a massive drag on growth. Economists now believe any significant economic improvement will depend on the strength of Britain’s services sector.

Chris Williamson, Markit’s chief economist, welcomed renewed optimism in the construction sector, but warned not to read too much into the figures.

“Despite the brighter signs for the coming months, the strength of the rebound remains uncertain. Civil engineering activity, for example, has been showing signs of weakness since late last year, and ongoing austerity is likely to limit government-funded infrastructure spending.

“Planning bottlenecks also put a limit on the extent to which housebuilding can continue to expand at the solid rate indicated by the PMI. EU membership uncertainty could also stymie business investment spending,” he said.

A forthcoming survey of Britain’s dominant services sector should give a clearer indication as to the strength of any second quarter rebound. Economists expect activity in the sector to have moderated slightly in May.

References:

Telegraph