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Construction activity jumps to 17-month high as cost inflation falls

Construction output has risen to a 17-month high according to the latest figures from Markit/CIPS Construction PMI as cost inflation dropped off

The PMI for June measured at 56.0, up from 53.1 in the previous month, representing the largest growth in activity since December 2015.

A sharp rise in residential work was the main catalyst, with the sector rebounding from a seven-month low recorded in March this year, while both the civil engineering and commercial sectors reported improved activity.

Commercial activity also rose by its fastest rate since March 2016, with survey respondents noting an increased pipeline of new developments.

The rise in activity across all three sectors helped to fuel growth in employment numbers, with the rate of job creation accelerating to its strongest level since January 2016.

The PMI also found that cost inflation had slowed to its lowest level for seven months, although respondents noted that raw materials prices had continued to increase.

Respondents noted that while there were still “intense negotiations” with suppliers, the peak phase of price increases for imported materials had now passed.

Paul Trigg, construction specialist and assistant head of risk underwriting at insurer Euler Hermes, said while the PMI was positive, leaving the single market represented the biggest threat to construction’s growth.

“Despite robust performance, the construction sector is eager for the new government to secure a transition deal with the EU, at the very least, to address concerns on the supply of migrant labour, raw materials and inward investment,” he said.

He added that Euler Hermes expected foreign direct investment to fall in the coming years, which could cause project delays or a slowdown in activity.

“Project delays could put a greater strain on cashflow and businesses will need to be increasingly vigilant of financial risk.”

CIPS director of customer relationships Duncan Brock added the increase in activity would put more pressure on the supply chain.

“Suppliers are struggling to meet demand while there is a growing shortage of contractors to complete work,” he said.

“After the experience of the financial crisis, it may be some time before risk aversion fully recedes and suppliers have more confidence to invest in their capacity. Only time will tell whether we are witnessing a long awaited resurgence in housebuilding.”

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