Construction sector is building a better future for the UK economy

The UK economy was given some welcome relief yesterday when a closely-watched survey revealed a bounceback in housebuilding activity had boosted the construction sector last month.

The Markit/Cips purchasing managers' index, where a reading of more than 50 represents growth in construction activity, came in at 54 in May, up from 53.3 the previous month.

A return to growth for housebuilding offset a marked decline in civil engineering work, leading to a bigger-than-expected acceleration in overall growth for the construction sector.

Analysts said the figures suggest the construction sector, which makes up about 7 per cent of the total UK economy, will contribute positively to GDP growth in the second quarter after shrinking by 4 per cent in the first three months of the year.

The sector has been one of the most volatile areas of the economy in recent quarters, swinging from strong growth in the middle of last year to contraction in the last quarter of 2010 and first quarter of 2011.

A further rise in new business and the release of previously mothballed projects supported the latest expansion in activity. There was further cheer as the survey reported the first increase in employment in the sector for ten months, but higher raw material prices are continuing to drive cost inflation.

IHS Global Insight economist Howard Archer said that, despite yesterday's figures, the construction sector still faces a challenging environment. He added: "In particular, the government's extended pruning of public spending will clearly limit expenditure on infrastructure."