By Daniel Hunter

UK construction companies indicated that the rebound in output levels indicated during the second quarter of 2013 was maintained into July. Moreover, the latest survey signalled that growth of both business activity and incoming new business accelerated sharply since the previous month.

This in turn resulted in a solid increase in construction employment levels and the strongest degree of positive sentiment about future output since May 2010.

At 57.0 in July, up sharply from 51.0 in June, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) pointed to a robust and accelerated expansion of overall business activity in the construction sector. The index was above the 50.0 no-change value for the third month running, and the latest reading signalled that the rate of output growth picked up to its fastest since June 2010.

Higher levels of business activity were recorded in all three broad areas of the construction sector monitored by the survey in July. However, residential building activity was by far the strongest performing category, with output growth surging to its steepest since June 2010. Growth of housing activity has now been recorded for six months running. Meanwhile, civil engineering activity returned to expansion in July, and commercial construction output rose at the most marked pace since May 2012.

Construction companies widely linked the acceleration in output growth to stronger inflows of new business in July. Latest data pointed to an increase in new orders for the third month running and the steepest rate of growth since April 2012. Anecdotal evidence suggested that a marked improvement in demand within the house building sector had underpinned the expansion in new business inflows, alongside a general rise in client spending amid signs of better conditions across the wider UK economy.

Meanwhile, the latest upturn in construction output led to a sharp rise in purchasing activity in July. There were signs that this placed further strains on suppliers to the construction sector, with vendor lead- times lengthening to the greatest degree since June 2007, while cost inflation picked up to its fastest for nine months.

“July’s survey highlights a new wave of optimism across the UK construction sector, with companies reporting a pace of expansion in excess of anything seen over the past three years," Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI, said.

"The swing back to output growth broadened to include commercial and civil engineering activity during July, although housing construction remains the one thing crucial to the sector’s strong upturn at present.

“Construction firms saw the fastest improvement in new orders for over a year, which helped kick-start job creation and input buying growth during July. A switch to sharply rising purchasing activity may have caught some suppliers by surprise, as delivery times lengthened to the greatest degree in over seven years.”

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