UK construction picked up unexpectedly strongly last month according to the latest sector PMI. At 58.1 the headline index was more than 2 points above its May outturn and comfortably higher than the 22-month low recorded in April. Indeed, activity expanded at its fastest rate since February.
Once again, residential was the best performing subsector although June's overall gain was more to do with increased momentum in both civil engineering and commercial building. Growth of aggregate orders saw its best reading since October last year and job creation was the fastest so far in 2015. Moreover, confidence in the year-ahead outlook was the most optimistic in more than eleven years.
Capacity issues were again apparent in both another solid rise in sub-contractor charges, although the increase here was the smallest in four months, as well as the largest increase in vendor lead times since March.
Part of June's strength can be attributed to the removal of election uncertainty but healthy order books and high confidence levels suggest that the construction industry was in very good shape in mid-year. Accelerating wage growth will be watched carefully by the BoE MPC but with other sectors of the economy rather less robust, this should not be a concern for the time being.
The Markit/CIPS UK Construction PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 170 construction companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on the regional and industry contribution to GDP. Unlike other PMIs, this PMI focuses on one industry, namely UK construction.
The survey is based on techniques successfully developed in the USA over the last 60 years by the National Association of Purchasing Management. It is designed to provide one of the earliest indicators of significant change in the economy. The data collected are not opinion on what might happen in the future, but hard facts on what is actually happening at 'grass roots' level in the economy. As such the information generated on economic trends pre-dates official government statistics by many months.
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