Record Growth in UK Construction: Civil Engineering Leads the Way

The UK construction sector has experienced its fastest growth in over two years, with the purchasing manager's index (PMI) climbing to 55.3 in July, up from 52.2 in June. This marks the fifth consecutive month of expansion and the quickest rate of growth since May 2022. Notably, all three subdivisions reported increased activity, with civil engineering leading the charge, reaching its highest level in nearly two-and-a-half years. The housing sector also returned to growth, and commercial activity saw a significant acceleration.

This surge in activity is attributed to improving demand, which has been on the rise for six months straight. Customer confidence is strengthening, leading to the release of previously paused projects. Andrew Harker, economics director at S&P Global Market Intelligence, noted, "Firms saw the strongest increases in new orders and activity since 2022 as paused projects were released amid reports of improved customer confidence." This resurgence has also positively impacted employment levels, which have risen for the third month in a row, reaching their highest level in a year.

The construction industry, particularly the housing sector, has faced significant challenges over the past two years due to rising interest rates. However, there is optimism for the future, with expectations of lower interest rates and political support for overhauling the planning system. Matthew Pointon, senior commercial real estate economist at Capital Economics, commented, "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."

Despite the positive outlook, inflationary pressures remain a concern. Suppliers have been increasing prices to match the uptick in demand, leading to the highest rate of input cost inflation in 14 months. Harker emphasized the need to monitor these inflationary pressures closely if the strong demand persists in the coming months.