Construction sector cheer following a three-year best

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A SURGE in housebuilding spurred a new wave of optimism in the construction sector as it achieved its best performance for three years, figures showed yesterday.

The reading of 57 on the closely-watched Markit/CIPS purchasing managers’ index was the best since June 2010 and a steep rise from 51 recorded in June. A reading of 50 separates growth from contraction.

The figures add to hopes of a sustained recovery in the sector after official figures showed it grew 0.9 per cent in the second quarter of the year, though it remains 16.5 per cent off pre-recession levels.

Construction has been buoyed by flagship initiatives including Funding for Lending, which incentivises banks to offer mortgages, and Help to Buy, which offers loans and guarantees to help buyers with small deposits.

The survey results were the third month in succession that the construction index was above the no-change level of 50.

Residential building activity was by far the strongest area as it recorded its sixth month of improvement in a row.

But there was also a return to expansion for civil engineering while commercial construction output rose at its strongest pace since May 2012.

Firms attributed the overall improvement to a marked improvement in demand for housing alongside a general rise in spending amid signs of an improving UK economy. Optimism about the year ahead reached its strongest level since May 2010, leading to a rise in employment levels for the second month running.

Tim Moore, senior economist at survey compiler Markit, said: “July’s survey highlights a new wave of optimism across the UK construction sector, with companies reporting a pace of expansion in excess of anything seen over the past three years.”

David Noble, chief executive at the Chartered Institute of Purchasing and Supply, said: “Homes are the beating heart of this rapid recovery in the construction sector, backed by a solid expansion in civil engineering and commercial activity.”

He said confidence was the highest since the coalition’s austerity policies began in 2010, suggesting growth could be sustained into the third quarter.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “Of critical importance to the construction sector going forward is that the economy and housing market sustain their recent improvement over the coming months, and that this stimulates building work.

“It currently appears that housing market activity is really stepping up a gear, while the Government’s Help to Buy initiatives in the budget to boost housing market activity was also welcome news for housebuilders.”

But he said construction continued to be constrained by the impact of austerity measures on public sector projects.