House-building leads construction sector's unexpected rebound

The UK's construction industry recorded a surprisingly strong recovery in May on the back of a surge in house-building.

A 17-month high

Activity in the sector reached a 17-month high according to the Markit/CIPS UK construction purchasing managers' index (PMI), which rose from 53.1 in April to 56.0 last month, considerably above economists' expectations of 52.6.Private house-building, which was at a seven-month low in March, grew at its fastest pace since December 2015, while new orders and the number of jobs also expanded strongly.

Surge in residential house-building

Tim Moore, IHS Markit senior economist, said, “May’s survey data reveals that the UK construction sector has started to recover strongly from its slow start to 2017.“House-building was the key growth driver, with work on residential projects rising at the fastest pace since December 2015. A sustained rebound in residential building provides an encouraging sign that the recent soft patch for property values has not deterred new housing supply.“Instead, strong labour market conditions, resilient demand and ultra-low mortgage rates appear to have helped boost work on residential development projects in May.“Civil engineering continued to flourish, helped by a strong pipeline of infrastructure projects. However, commercial building was trapped in the slow lane amid reports highlighting that heightened economic uncertainty is holding back client spending.“The forward-looking elements of the latest survey are reassuring for the construction sector, notably the acceleration in new business growth to its strongest so far this year.“On the price front, while construction costs have ratcheted up over the past six to nine months, the wave of inflation from imported materials now appears to have passed its peak.”

Retail sector sees falling sales

The news from the UK's retail sector, however, was not so good. High streets saw their third consecutive month of falling sales, with fashion retailers suffering the most amid a dip in consumer spending.Like-for-like sales were down 1.3 per cent on May 2016 with fashion stores seeing a 3.6 per cent decline, according to BDO's High Street Sales Tracker. Only homeware and lifestyle goods sectors showed healthy growth. 

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Sophie Michael, head of retail and wholesale at BDO, said, “Retailers are facing turbulent times with rising operational costs, higher import prices and economic uncertainty. These factors result in higher inflation and, therefore, lower discretionary spend.“Prolonged blanket discounting is not sustainable, but shoppers need incentives to make the purchase. So it appears that most retailers have chosen to run targeted, short-term discounting in an attempt to ignite spending and protect further erosion to margins. They will be hoping for these turbulent times to calm and, once they do, the right strategies should pay dividends.”For related news and features, visit our Enterprise section.Access hundreds of global services and suppliers in our Online Directory  Get access to our free Global Mobility Toolkit

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