Confidence about the 12-month outlook in the UK construction sector has reached its highest level since January 2007, according to the latest  Markit/CIPS UK Construction Purchasing Managers’ Index® survey by Markit Economics.

The March data signalled a strong overall performance for the UK construction sector, with sharp rises in activity and employment maintained during the  latest survey period. Although new business growth slipped to a six-month low, construction firms remain highly upbeat about the prospects for output over the year ahead.

Reports of improving underlying demand and more favourable business conditions helped business optimism reach its highest level since January 2007.

Markit said the latest reading signalled a “steep overall expansion of UK construction activity” and the index has now registered above the 50.0 no-change value for 11 months in a row.

The rate of civil engineering output growth slowed markedly in March, following a flood relief driven survey-record high during February. Commercial construction activity continued to rise sharply amid improving economic fundamentals, with the pace of expansion again close its fastest since the summer of 2007.

Volumes of new work increased for the eleventh successive month in March, although the rate of expansion eased to its least marked since September 2013. Increased work on new projects contributed to a sharp rise in employment numbers across the construction sector. The rate of job creation picked up over the month and was the second-fastest since August 2007.

Markit said the increased staffing levels were partly linked to improving confidence about the outlook for construction activity over the next 12 months.

“Supplier capacity will become a fly in the ointment”

The survey also shows that input buying continued to increase sharply and cost inflation remained strong in March. There were also further signs of strains on supply chains, as delivery times for raw materials lengthened to the second-greatest extent since July 1997, exceeded only by the deterioration experienced last November. There were widespread reports that pressures on supplier capacity had resulted in longer lead-times. Meanwhile, construction firms also indicated that sub-contractor availability had decreased at the fastest pace since September 2000.

 Commenting on the survey, Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI® said:

 “Expectations for construction growth over the year ahead have now reached their highest since the start of 2007, and a strong pipeline of new work is fuelling job creation across the sector. “

“However, the latest survey does little to dispel concerns that supplier capacity will become a fly in the ointment. Lead-times for the delivery of construction materials lengthened in March by one of the greatest amounts since the survey began in April 1997, while sub-contractor availability fell at the fastest rate for thirteen-and-a-half years.”