Acceleration in housing activity lifts hopes of construction revival

Renewed activity among housebuilders spurred the first rise in construction output for seven months in May, raising hopes that the sector’s slump may be easing.

The fastest increase in housebuilding work seen for more than two years lifted the closely-watched construction purchasing managers’ index (PMI) to a reading of 50.8 last month, just above the 50 level that separates growth from contraction.

That was the first positive construction PMI since October and followed a 49.4 reading in April, confounding economists’ expectations of only a slight improvement.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “Construction companies will be fervently hoping that both the economy and the housing market see sustained improvement over the coming months, even if only limited, and that this stimulates building work.”

Although housebuilding has been boosted by UK government stimulus measures, the survey pointed to another fall in commercial building and civil engineering, where spending is drying up.

Tim Moore, senior economist at Markit, said construction appears to have “finally pulled out of a tailspin”, but the sector is “worryingly reliant on residential building work for thrust”.

The growth in construction output follows an uplift in manufacturing activity, adding to hopes the two sectors may soon begin contributing to the economic recovery. The UK economy grew 0.3 per cent in the first quarter, driven by the dominant services sector, and the Bank of England expects growth to increase to 0.5 per cent in Q2.