Construction survey shows first growth since October, fuelled by residential building work

The Construction Purchasing Managers' Index (PMI) figure for May (3-page / 81KB PDF) was 50.8, up from 49.4 in April and above the score of 50 that indicates growth. PMI data is collected by analysts Markit and the Chartered Institute of Purchasing and Supply (CIPS) from a survey of more than 170 purchasing executives working within the construction sector.

However, the analysts said that the latest reading was heavily driven by residential activity while commercial construction and civil engineering activity both declined, albeit at a slower pace than in recent months. In addition, the "marginal pace of expansion" remained below an average of 53.9, which itself it down from the 56.3 average score over the decade leading up to the global financial crisis in 2008, they said.

"The Government's attempts to boost house building has given months of lacklustre growth a shot in the arm, but the continued decline in civil engineering can largely be attributed to the lack of public sector projects, which show no sign of increasing," said David Noble, CIPS chief executive. "This, coupled with poor performance in the commercial sector, means house building alone is driving industry growth."

"Supplier performance in May was the weakest since 2007, reflecting the slow pace of growth filtering through the supply chain, which continues to recover from the recession. This is typified by shortages of capacity, low stocks and worsening lead times which have reduced suppliers' capacity to meet demand as the sector tries to gear up for recovery. This will need to improve, before the sector sees a return to previous levels of output," he said.

The Government announced a major new Help to Buy scheme, comprising an equity loan programme and a new mortgage guarantee, as part of this year's Budget in a bid to boost the housing market. It also set aside more money for the Right to Buy scheme, which supports social tenants in purchasing their homes, and the Build to Rent fund, which provides equity or loan finance to support the development financial stage of building homes for private rent.

The survey showed an improvement in business confidence since April, with 40% of construction firms now anticipating a rise in output over the next 12 months, according to the figures. This was three times as many as the number of firms that predicted a reduction in output.

However, the survey indicated no improvement in employment levels across the sector in May. Staffing levels have remained stagnant across each of the past three months, according to the report. In most cases, respondents attributed this to "subdued underlying demand".