By Daniel Hunter

At 50.9 in July, up from 48.2, the seasonally adjusted
Markit/CIPS Construction Purchasing Managers’ Index (PMI) moved back above the 50.0 no- change level, rebounding slightly from June’s two- and-a-half year low.

However, the latest reading was well below the long-run series average (54.2) and pointed to only a marginal expansion of overall UK construction output.

Growth was largely confined to the commercial sub- sector in July, as house building and civil engineering activity continued to decline. The latest reduction in civil engineering was the second- fastest since September 2011. July data indicated a further reduction in new work received by construction companies.

Although the rate of decline eased over the month, it was still the second-fastest since January 2010. Survey respondents widely cited a lack of new opportunities to tender and a general weakness in underlying market demand.

UK construction companies reported a second consecutive monthly reduction in purchasing activity at their units. The rate of reduction in input buying was only moderate, albeit the second- fastest since November 2010. Anecdotal evidence linked the latest decline to falling volumes of new work and, in some cases, efforts to streamline stocks.

Suppliers’ delivery times meanwhile lengthened sharply in July, which some respondents attributed to delayed deliveries around London in the run-up to the Olympics. The latest overall deterioration in vendor performance was the most marked since February 2011. Moreover, longer supplier lead- times have now been recorded for almost two years in a row.

Input prices increased in July, thereby extending the current period of cost inflation to two-and-a-half years. However, the latest increase was relatively subdued and slower than the long-run series average. Construction companies noted that higher energy and fuel costs were the main reasons for rising input prices during July. Meanwhile, rates charged by sub-contractors declined for the fourth month running and at the fastest pace since June 2011. Sub-contractor availability increased at the slowest rate since November 2007.

Latest data showed that more than twice as many construction firms anticipate an increase in business activity over the year ahead as those that forecast a decline. As a result, survey respondents remain optimistic overall that output will rise in 12 months’ time, and the degree of positive sentiment was the strongest since April. Anecdotal evidence cited a gradual rebound in output, boosted by the resumption of delayed projects. Confidence about the outlook for activity helped support a marginal rise in employment in July, which was the fourth increase in the past five months.

“Last month’s construction performance was so bad, that this month there was hope for a positive turnaround," David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said.

"There was some progress, with a slight boost in performance, but the external operating environment remains depressed. While the modest growth in July has been driven by the commercial sector, housing and civil engineering continue to lag.

“Worryingly, the sharp drop in new business means there is little chance of the sector rebounding quickly. However optimism remains, with increased employment and retention of sub-contractors. Whilst this is encouraging, the relative stability of construction employment is partly a reflection of just how steep the job cuts were in the lead-up to the double-dip.

“Firms were hoping for a post-Olympics fillip; based on today’s figures, the overall likelihood of that happening has dwindled.”

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