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Workload growth surges to 14-month high in July

Construction activity and new orders increased at the fastest rate in more than year in July, according to the latest construction purchasing managers’ index.

The IHS Markit / CIPS PMI jumped to 55.8 in July, up from 53.1 in June – any figure above 50.0 indicates an increase in activity.

July’s index marked the fastest rise in activity since May 2017, driven by more projects starting on site combined with contractors catching up on work held up by bad weather in the first quarter.

Housebuilding recorded the fastest growth in July’s PMI survey and the commercial sector also saw a jump in activity, bucking the downward trend of the past two years.

The civil engineering market posted only modest growth, with a slowdown in rail work noted as the CP5 spending period starts to wind down.

July also saw new orders increase at the fastest rate since May 2017, with a greater number of larger projects going ahead in particular.

IHS Markit associate director Tim Moore said: “While the recent rebound in construction work has been flattered by its recovery from a low base earlier in 2018, there are also signs that underlying demand conditions have picked up this summer.”

Increasing activity since a slowdown in the first quarter has led to higher cost pressure for firms, the PMI reported, with fuel and steel products being particularly expensive and labour costs remaining high.

Naismiths managing director Blane Perrotton said: “While input cost inflation has eased a touch from the nine-month high seen in June, building firms’ increasingly frenzied competition for workers is driving up wages while the weak pound is keeping imported material costs high.”

Firms remained cautious over the industry’s outlook despite July’s positive numbers, with business sentiment measured by the PMI unchanged since June and below its long-term average.

Uncertainty around Brexit weighed on firms’ confidence, and commentators warned that the industry needed to prepare with the UK’s departure from the EU just over seven months away.

MHA Macintyre Hudson head of construction and real estate Brendan Sharkey said: “Given the industry doesn’t depend on exports, the potential pitfalls of a no-deal Brexit have perhaps been easier to overlook.

“Yet construction does depend on the import of raw materials, and crucially on the free movement of labour.”

Lloyds Bank global corporates director for construction Max Jones said Brexit uncertainty was proving a drag on the London construction market, which could be a sign of worse to come.

“Worryingly, the capital is often a forward indicator for the regions, which have recently been performing well,” he said.

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