Demand weighing on construction sector

The construction sector cooled further last month but there were signs that the industry was struggling to keep up with still strong demand, a survey showed yesterday.

The Markit/CIPS UK construction PMI eased to 60.0 in May, its lowest level in seven months, from 60.8 in April. It was the fourth month in a row the pace of growth eased after hitting a six-and-a-half-year high in January.

Britain’s construction industry was hit hard by the financial crisis but has been recovering since last year thanks to record-low interest rates, government programmes to encourage people to buy new homes and falling unemployment.

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The Markit index has now been above the 50 threshold denoting growth for 13 straight months.

Nonetheless, the pace of home-building has lagged demand, pushing up property prices and raising concerns at the Bank of England about risks from the housing sector for the economy.

The BoE has said it will try to fend off any risks from housing through mortgage controls before it resorts to higher interest rates.

Markit said housebuilding remained the best-performing sector of the construction industry last month. Commercial building was its slowest in seven months.

Markit said the May survey showed longer lead times for suppliers were causing bottlenecks and pay rates for contractors rose at their steepest pace since the survey began more than 17 years ago.