Construction sector growth adds to hopes of recovery

The UK eked out growth of 0.3 per cent in the first quarter, driven by Britain’s dominant services sector, and the Bank of England expects growth to increase to 0.5 per cent in the second quart- er.

Housebuilders have been reporting surging interest as Chancellor George Osborne’s new Help to Buy package of loans and guarantees sends would-be buyers flocking to new developments.

Under Help to Buy, the Government lends buyers up to 20 per cent of the value of a new build home, interest-free for five years.

Mortgage guarantees also aim to support another £130bn of high loan-to-value mortgages, by shifting the risk of default away from lenders on to the State.

Help to Buy is on top of earlier schemes such as First Buy and New Buy, which aim to entice first-time buyers and promote housebuilding.

However, experts have warned Help to Buy may drive up house prices and outgoing Bank of England governor Sir Mervyn King has said it must be a temporary measure.

Today’s report showed companies citing stronger demand in the housebuilding sector, which saw “robust and accelerated” expansion.

Firms saw the first improvement in new business volumes for 12 months, while optimism also surged.

Around 40 per cent of firms believe output will rise over the next year, compared with just 13 per cent who expect a fall.

Despite this, staffing levels were flat and have failed to rise for the past three months, which firms blamed on subdued underlying demand.

Suppliers also gave their worst performance for almost six years, as lead times lengthened on low stocks and capacity shortages.

Costs also increased for the 40th successive month, driven by rising energy prices.

David Noble, chief executive of the Chartered Institute of Purchasing & Supply (CIPS), said: “Whilst confidence for the year ahead remains high, the poor performance of suppliers and flat levels of employment will serve as a reality check to construction and the wider UK economy.”

Howard Archer, chief UK and European economist at IHS Global Insight, had expected a reading of 49.6 in May for the construction sector and said it looks to have been a “decent” month for the economy.

“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,” he said.

“Nevertheless, the construction sector is clearly still in a fragile state,” he added.