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UK Construction Climbs Unexpectedly in July

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United Kingdom  IHS Global Insight  Office for National Statistics  Howard Archer  UK Construction Figures 

UK Construction Climbs Unexpectedly in July

By - Friday 21 September 2012

UK construction has enjoyed a surprise return to growth in July, all the more surprising because of the fact that construction contracted at the fastest rate in over 2 years in June. In the Markit/CIPS construction PMI report the headline index rose to 50.9 in July, from 48.2 in June, anything above 50 indicates expansion. Economists had expected the sector to shrink for a second month, forecasting 48.7.

June's exceptionally poor performance was put down to unnaturally wet-weather for the season, combined with government cut-backs and weak private demand, all of which have been dragging down construction figures over the past few months. The Office for National Statistics estimated that construction output fell sharply in the second quarter overall, by 5.2pc, following a 4.9pc decline in the first quarter.

Economists are quick to caution that this rise does not mean we are out of the woods yet, far from it.

"While the construction purchasing managers' survey was not as bad as feared, it is still a weak survey that does little for hopes that the sector is poised for a significantly improved second half of 2012 after being a major drag on the economy during the first half," said Howard Archer, chief UK economist at IHS Global Insight.

"While the survey shows marginal expansion in activity in July, this seems like the bounce of a dead cat after output was held back in June by the two day's public holiday and particular wet weather."

The continued difficulties are evidenced by the fact that new orders fell in July, for the second straight month. Despite the fact that the fall was at a slower pace, the decline indicates no imminent bounce in activity. What is good is that construction employment grew in July; the PMI rose from 48.9 in June to 51.5 in July. Companies were also feeling more optimistic about business prospects than they were a month earlier.

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