Activity in the UK construction sector hit its fastest pace in just over two years, a closely watched survey showed, as the housing sector returned to growth.
S&P’s purchasing manager’s index (PMI) for the construction sector jumped to 55.3 in July, up from 52.2 in June and well ahead of the 50 no-change mark.
The reading put the construction sector in expansion for the fifth consecutive month and was the fastest pace of growth since May 2022.
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All three subdivisions reported an increase in activity after the housing sector climbed back into expansionary territory.
The fastest rate of expansion was seen in civil engineering activity, where the rate of growth accelerated to the sharpest pace in nearly two-and-a-half years. Commercial activity also accelerated strongly.
Activity increased on the back of improving demand, which expanded for the sixth month in a row. there were also reports that customer confidence had strengthened, making them more willing to release previously paused projects.
“Firms saw the strongest increases in new orders and activity since 2022 as paused projects were released amid reports of improved customer confidence,” Andrew Harker, economics director at S&P Global Market Intelligence said.
On the back of stronger activity, employment levels picked up for the third consecutive month, with the pace of expansion hitting its strongest pace for a year.
The construction sector, and housing in particular, has endured a difficult couple of years due to the impact of higher interest rates. Before this month, the housing sector had been in contraction for 19 of the last 20 months.
The housing sector is likely to benefit in the months ahead from lower interest rates and political support as Labour reforms the planning system.
Matthew Pointon, senior commercial real estate economist at Capital Economics, said: “As capital values stabilise in the commercial sector and the new government moves to boost homebuilding, we expect that gradual recovery in construction activity to continue.”
More worryingly, the survey showed an increase in inflationary pressures as suppliers raised prices in line with stronger demand. Input cost inflation hit its fastest pace in 14 months in July, although it remained well below the series average.
Harker said inflationary pressures would have to be “watched closely” if demand remains strong in the months ahead.